Starboard Value Takes New Stake in Shake Shack

Summary

Starboard Value CEO Jeff Smith reveals a new several-hundred-million-dollar stake in Shake Shack, arguing the stock is dramatically undervalued at ~10x EBITDA relative to its mid-teens growth. He sees a clear catalyst in adding US franchising to the company-owned model, which could nearly double growth speed. The interview also touches on Starboard's activist restaurant track record and the current stock-picker's market environment.

• Starboard Value has established a large position in Shake Shack, making it likely the largest active shareholder.
• Shake Shack shares fell from ~$90 to $55-60 after Q1 earnings, leading to a valuation of ~10x EBITDA even though the business grows mid-teens.
• Smith contends the growth-to-multiple relationship in restaurants implies Shake Shack should trade at roughly double its current multiple.
• The operational quality and management under CEO Rob Lynch are praised, with lowered build costs improving new-unit returns.
• A key value-creation lever is US franchising, which Starboard would push to accelerate the journey to 1,500 stores (and potentially 2,500).
• The franchising push could cut the time to the 1,500-store target from 12 years to 7 years, materially boosting growth and value.