Shake Shack (NYSE:SHAK) versus FAT Brands (NASDAQ:FAT) Critical Review

FAT Brands (NASDAQ:FAT) and Shake Shack (NYSE:SHAK) are both retail/wholesale companies, but which is the better stock? We will contrast the two companies based on the strength of their institutional ownership, dividends, profitability, analyst recommendations, earnings, valuation and risk.

Analyst Ratings

This is a summary of recent ratings and price targets for FAT Brands and Shake Shack, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
FAT Brands	1	1	1	0	2.00
Shake Shack	3	12	6	1	2.23

FAT Brands presently has a consensus price target of $10.00, indicating a potential upside of 410.20%. Shake Shack has a consensus price target of $124.89, indicating a potential upside of 37.41%. Given FAT Brands’ higher probable upside, equities analysts clearly believe FAT Brands is more favorable than Shake Shack.

Volatility and Risk

FAT Brands has a beta of 1.21, suggesting that its stock price is 21% more volatile than the S&P 500. Comparatively, Shake Shack has a beta of 1.65, suggesting that its stock price is 65% more volatile than the S&P 500.

Earnings and Valuation

This table compares FAT Brands and Shake Shack”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
FAT Brands	$592.65 million	0.06	-$189.85 million	($12.70)	-0.15
Shake Shack	$1.25 billion	3.10	$10.21 million	$0.46	197.60

Shake Shack has higher revenue and earnings than FAT Brands. FAT Brands is trading at a lower price-to-earnings ratio than Shake Shack, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares FAT Brands and Shake Shack’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
FAT Brands	-36.77%	N/A	-16.49%
Shake Shack	1.50%	9.78%	2.83%

Institutional & Insider Ownership

6.9% of FAT Brands shares are owned by institutional investors. Comparatively, 86.1% of Shake Shack shares are owned by institutional investors. 14.4% of FAT Brands shares are owned by company insiders. Comparatively, 8.5% of Shake Shack shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Summary

Shake Shack beats FAT Brands on 13 of the 15 factors compared between the two stocks.

About FAT Brands

FAT Brands Inc., a multi-brand restaurant franchising company, acquires, develops, markets, and manages quick service, fast casual, casual dining, and polished casual dining restaurant concepts worldwide. It owns restaurant brands, including Round Table Pizza, Marble Slab Creamery, Great American Cookies, Hot Dog on a Stick, Pretzelmaker, Fazoli's, Fatburger, Johnny Rockets, Elevation Burger, Yalla Mediterranean, Buffalo's Cafe and Buffalo's Express, Hurricane Grill & Wings, Ponderosa Steakhouse/Bonanza Steakhouse, Native Grill & Wings, Smokey Bones, and Twin Peaks. The company was incorporated in 2017 and is headquartered in Beverly Hills, California. FAT Brands Inc. is a subsidiary of Fog Cutter Holdings, LLC.

About Shake Shack

Shake Shack Inc. owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally. Its Shacks offers hamburgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. The company was founded in 2001 and is headquartered in New York, New York.