How to Invest in the Burger Craze - Investment Ideas

Forget apple pie.

There's a certain type of food that has entranced Americans for over 70 years.

The burger.

In spite of slowing sales at McDonald's, and its peers like Burger King and Wendy's, the burger market is actually growing as new, gourmet names expand their empires.

What was once a regional-focused market, with the likes of In-and-Out Burger on the West Coast and Five Guys Burger and Fries on the East Coast, dominating their respective markets, has become a national, and even international, playing field with many different gourmet burger chains vying for dominance.

Many of these upstart chains are small and expanding rapidly.

Years ago, famed investor Peter Lynch once said about retailers, that it takes a long time to expand a chain across a country so even if an investor gets in past the start-up stage, there's likely to still be quite a bit of growth to cash in on.

That's also true of restaurant chains. Some of the gourmet burger brands that are publicly traded, are still in their infancy with less than 100 restaurants worldwide. Comparatively, McDonald's has over 36,000 global restaurants.

How Does an Investor Get In on the Burger Game?

Many well-known gourmet burger brands are still privately owned so investors are out of luck.

Those include In-and-Out Burger, founded in 1948, which has a cult following in California and now has 300 restaurants in 5 states and Five Guys Burger and Fries, which was started in Washington DC in 1986 and now has over 1,000 locations in 47 states and Canada.

Smashburger is the latest entry into the burger wars. It's a relative newcomer, founded in 2007 in Denver, but now has 300 locations in 32 states and 5 countries. Its CEO recently said in an interview that it has no imminent plans to go public.

While investors chomp at the bit to get a piece of those expanding companies, they can still satisfy their burger needs with a handful of burger companies that have decided to take the plunge and go public.

The public companies have several things in common: they offer burgers, some with "secret" sauces. They like to cook everything fresh, including their french fries, and shakes or ice cream concoctions are prominently featured on the menu.

None of their menus, by the way, are exactly low calorie but "natural" and "fresh" are featured.

Consumers can't seem to get enough of gourmet burgers as they are willing to absorb recent price increases and willing to pay a premium over the price of, say, McDonald's.

Just who IS publicly traded?

And which has the best fundamentals and growth story?

Three Publicly-Traded Burger Companies To Buy Now

1. Red Robin Gourmet Burger
2. Habit Burger
3. Shake Shack

Burgers are a competitive market but most locations have yet to be saturated.

In Los Angeles, for instance, both In-and-Out Burger and Habit Burger have thrived for decades operating literally within the shadow of each other.

But each chain has its own expansion plans and geographic strengths and weaknesses.

Shares are soaring on the burger chains. They've become the "new" social media or technology stocks. Investors are buying into the growth.

These 3 burger companies have the ingredients investors are looking for. have Zacks Ranks of #2 (Buy) or #3 (Hold) and strong earnings and same-store-sales growth.

1. Red Robin Gourmet Burger (RRGB)

The first Red Robin restaurant was begun in Seattle, Washington in 1969. While it served sandwiches and beer, the first burgers were offered on the menu in 1973. One of its signature items, the Bottomless Steak Fries, appears in 1994. By 2000, it had expanded to 150 restaurants nationwide.

It went public in 2002 and continued to expand. It differs from some competitors in that it is a sit-down restaurant serving a larger menu which includes salads, soups and alcohol. In 2011, it opens its first casual restaurant called Red Robin Burger Works. This serves a more limited menu of just burgers and appeals to those in major urban centers, like downtown Chicago.

It has only just begun rolling out the Burger Works concept and is in just a handful of cities.

Red Robin is a more mature company than some of the other gourmet burger competitors. It is also predominantly a sit-down dining experience which separates it from the others on this list.

Number of Restaurants: 500+ in the United States and Canada
Market Cap: $1.14 billion
Forward P/E = 27.2
Expected 2015 Earnings Growth = 14.8%

Comparable store sales growth expected to be between 2% and 3% in 2015

Zacks Rank #3 (Hold)

2. The Habit Restaurants, Inc. (HABT)

Habit Burger was founded in Santa Barbara, California in 1969 and specializes in the charburger. It has grown to over 100 restaurants in 10 markets in California, Arizona, Utah and New Jersey. It is still heavily California centric, however, with most of its restaurants in the Golden State.

The company is tiny compared to Red Robin. It is in the first stages of its national expansion.

The brand has been hot. On Apr 7, it announced preliminary first quarter comparable store sales results had increased between 12.4% and 12.6%. For the full year 2014, comparable store sales rose 10.7% due to a 3.7% increase in average transactions and a 6.8% increase in transactions.

Number of Restaurants: 100 in 4 states
Market Cap: $280 million
Forward P/E = 182
Expected 2015 Earnings Growth = 9.4%

For the first quarter, comparable store sales growth expected between 12.4% and 12.6%.

Zacks Rank #2 (Buy)

3. Shake Shack Inc. (SHAK)

Shake Shack started as a hot dog cart in 2001 in New York's Madison Square Park. By 2004, it had opened its first restaurant and has been growing in New York City ever since.

The company is known for using 100% all-natural Angus beef that is never fed with hormones or antibiotics. One of its signature dishes are the cheese crinkle fries. It also serves shakes and frozen custard.

Its been expanding rapidly out of its New York home base and now boasts 63 Shacks, with 36 in the United States and 27 internationally. The international Shacks are licensed as are 5 domestic Shacks.

On Mar 11, it announced that it aimed to open 10 domestic Shacks a year and has 450 domestic Shacks as its ultimate goal.

Investors love the growth potential and have bid the stock up, but it's now the most expensive among the gourmet burger stocks and one of the most expensive restaurant stocks.

Number of Restaurants: 63 in both the United States and internationally
Market Cap: $730.4 million
Forward P/E = 1086
Expected 2015 Earnings Growth = -64% (Shake Shack made $0.16 in 2014 and the Zacks Consensus for 2015 is $0.06)

For 2015, Shake Shack guided same Shack sales growth in the low single digits

Zacks Rank #3 (Hold)

Other Names To Consider

There are a lot of other players in the burger space that investors should keep an eye on. That includes Good Times Restaurants (GTIM) which operates 37 Good Times Burgers & Frozen Custard restaurants and 3 Bad Daddy's Burger bar restaurants, which is a full service, upscale gourmet burger restaurant concept.

Good Times Burgers are located mostly in Colorado and serves a similar menu to its competitors of all natural burgers, frozen custard, and fresh cut fries.

On Apr 2, it announced fiscal second quarter same-store-sales rose 8.2%.

It has a tiny market cap of just $75.7 million. Earnings are expected to grow by 10.4% in fiscal 2015. It's currently a Zacks Rank #4 (Sell).

Growth is definitely there in the industry but it's getting to be a crowded space.

The question is, which companies will come out on top for the consumers' burger dollars?

[In full disclosure, the author of this article, a burger fan, ate at both Shake Shack and Red Robin Burger Works this week as research for this article. Neither Habit nor Good Times are in Chicago, but a road trip is being contemplated.]

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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SHAKE SHACK INC (SHAK): Free Stock Analysis Report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
HABIT RESTRNTS (HABT): Free Stock Analysis Report
 
GOOD TIMES REST (GTIM): Free Stock Analysis Report
 
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