Shake Shack IPO Means Last Call To Get Long Good Times Restaurant

| About: Good Times (GTIM)
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Summary

SHAK’s IPO promises to attract a lot of attention to the higher-end fast-food burger industry.

GTIM is very close to profitability and should easily achieve material profits in 2015.

GTIM’s same-store sales growth has been accelerating the last three years while at SHAK it has been decelerating.

I hate to use CNBC as a reason for a trade, but there has been a lot of hype regarding the Shake Shack (Pending:SHAK) IPO weeks and months before it was even confirmed that there would be an IPO. Here's my speculative prediction: SHAK is going to do the usual fast-casual first day of trading huge jump, well above its offering price, which will bring a lot of attention to this unique space, and bring much needed and deserved attention to the undervalued Good Times Restaurants (NASDAQ:GTIM).

The SHAK offering alone is for up to $100 million for the 63 restaurant chain which is more than double GTIM's market cap. I should note that although GTIM fancies itself on the higher end of quick service with all-natural, hormone-free, grass-fed beef, etc. and all that jazz, SHAK considers itself a much bigger step up as a fine-casual chain serving fine-dining quality burgers. The average domestic unit sales according to its prospectus is $5.0 million which is very high for any publicly traded restaurant chain never mind one that isn't even full service. In Manhattan specifically the company claims an average of $7.4 million with $3.8 million for locations outside of Manhattan to arrive at that $3.8 million average. Still, at $3.8 million it is quite high.

Numbers like that should make for an impressive IPO but I believe some of that fortune will spill over to GTIM. SHAK notes in the prospectus filing,

"With the majority of the burger restaurant segment comprised of quick service restaurant competitors, we believe that Shake Shack is well positioned to take market share, as we believe consumers will continue to trade up to higher quality offerings given an increasing consumer focus on responsible sourcing, ingredients and preparation. Additionally, we believe that consumers will continue to move away from the added time commitment and cost of traditional casual dining."

That almost sounds like what I wrote for GTIM in my last article Good Times: Is This Little $50 Million Company The Next Big Thing In Restaurants? I had stated,

"You've heard the claims: People are flocking away from traditional fast food and heading over to higher quality cuisine that fast causal delivers…GTIM's Good Times Burgers boasts that its proteins are handcrafted, all natural, no hormones, no steroids, no antibiotics, vegetarian fed, and humanely raised -- all of the great attributes normally associated with health-conscious fast-casual places but criticized as lacking with MCD."

I see GTIM as king of the Chipotle Mexican Grill (NYSE:CMG) of fast-food burgers and SHAK is more of the Ruth's Chris Steakhouse (NASDAQ:RUTH) of the same. I believe there is an exploding market for both. SHAK shows it with the already super-high sales-per-unit numbers, and GTIM is showing it with same-store sales growth numbers.

For fiscal 2012, 2013, and the first nine months of fiscal 2014 SHAK showed same-store sales growth of 7.1%, 5.9%, and 3.0% respectively. It's not bad but not overly exciting. GTIM on the other hand for fiscal 2012, 2013, and 2014 showed same-store sales gains of 3.1%, 12.0%, and 14.6% respectively. GTIM is accelerating, albeit from a smaller base, while SHAK appears to be decelerating.

Both a tiny, young-in-their-business-models chains with a promising future - both in terms of potentially and successfully growing unit sales but GTIM has the same-store sales momentum and excitement behind it. SHAK reported a $3.5 million net income for the first nine months of the year. GTIM's biggest weakness as a stock is that it's not yet profitable though with just a $58,000 net loss last quarter it's basically almost there.

GTIM already preannounced continued eye-popping growth for the current quarter, menu price increases in January, and guided for more strong growth in 2015. I believe GTIM will easily turn profitable next year based on all that plus current momentum in sales and new unit growth. With profitability combined with more attention to this space I think will finally put GTIM on the map. With the SHAK IPO coming right up this may be the last chance to get shares at these levels.

Disclosure: The author is long GTIM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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