Analyzing Shake Shack (SHAK) & Potbelly (PBPB)

Potbelly (NASDAQ: PBPB) and Shake Shack (NYSE:SHAK) are both small-cap retail/wholesale companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, earnings, valuation, dividends, profitability, risk and analyst recommendations.

Profitability

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

Net Margins Return on Equity Return on Assets
Potbelly -1.62% 6.59% 4.60%
Shake Shack -0.63% 9.47% 3.82%

Analyst Ratings

This is a breakdown of current ratings and price targets for Potbelly and Shake Shack, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Potbelly 0 3 1 0 2.25
Shake Shack 1 5 3 0 2.22

Potbelly currently has a consensus target price of $14.33, suggesting a potential upside of 19.44%. Shake Shack has a consensus target price of $39.44, suggesting a potential downside of 3.18%. Given Potbelly’s stronger consensus rating and higher possible upside, equities analysts clearly believe Potbelly is more favorable than Shake Shack.

Valuation & Earnings

This table compares Potbelly and Shake Shack’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Potbelly $428.11 million 0.70 -$6.95 million $0.31 38.71
Shake Shack $358.81 million 4.18 -$320,000.00 $0.57 71.47

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

Volatility and Risk

Potbelly has a beta of 0.76, indicating that its share price is 24% less volatile than the S&P 500. Comparatively, Shake Shack has a beta of 1.28, indicating that its share price is 28% more volatile than the S&P 500.

Institutional & Insider Ownership

70.5% of Potbelly shares are owned by institutional investors. Comparatively, 82.4% of Shake Shack shares are owned by institutional investors. 9.6% of Potbelly shares are owned by company insiders. Comparatively, 34.9% of Shake Shack shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Summary

Shake Shack beats Potbelly on 10 of the 14 factors compared between the two stocks.

Potbelly Company Profile

Potbelly Corporation owns and operates Potbelly Sandwich Works sandwich shops in the United States. The Company has domestic and international franchise operations of Potbelly Sandwich Works sandwich shops. As of December 25, 2016, the Company operated Potbelly Sandwich Works sandwich shops in 29 states and the District of Columbia. As of December 25, 2016, the Company had a domestic base of 441 shops in 29 states and the District of Columbia. Of these, the company operated 411 shops, and franchisees operated 30 shops, as of December 25, 2016. As of December 25, 2016, the Company had 13 international franchised shops, which included 11 shops in the Middle East, a shop in the United Kingdom and a shop in Canada. As of December 25, 2016, the Company had domestic franchise shops in Arkansas, Iowa, Illinois, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Texas and Virginia.

Shake Shack Company Profile

Shake Shack Inc. owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally. Its Shacks offers hamburgers, hot dogs, chicken, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. As of December 27, 2017, it had 159 Shacks, including 90 domestic company-operated Shacks, 10 domestic licensed Shacks, and 59 international licensed Shacks. Shake Shack Inc. was founded in 2004 and is headquartered in New York, New York.

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