Cheesecake Factory (NASDAQ:CAKE) and Shake Shack (NYSE:SHAK) Critical Analysis

Cheesecake Factory (NASDAQ:CAKE) and Shake Shack (NYSE:SHAK) are both mid-cap retail/wholesale companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, earnings, analyst recommendations, dividends, risk, institutional ownership and valuation.

Volatility & Risk

Cheesecake Factory has a beta of 1.14, indicating that its stock price is 14% more volatile than the S&P 500. Comparatively, Shake Shack has a beta of 1.77, indicating that its stock price is 77% more volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Cheesecake Factory	4.33%	46.06%	5.98%
Shake Shack	0.97%	8.45%	2.44%

Institutional & Insider Ownership

94.5% of Cheesecake Factory shares are held by institutional investors. Comparatively, 86.1% of Shake Shack shares are held by institutional investors. 8.1% of Cheesecake Factory shares are held by insiders. Comparatively, 9.7% of Shake Shack shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Cheesecake Factory and Shake Shack, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cheesecake Factory	4	4	8	0	2.25
Shake Shack	1	13	7	1	2.36

Cheesecake Factory currently has a consensus price target of $54.00, suggesting a potential downside of 9.98%. Shake Shack has a consensus price target of $115.40, suggesting a potential downside of 13.20%. Given Cheesecake Factory’s higher probable upside, equities research analysts clearly believe Cheesecake Factory is more favorable than Shake Shack.

Earnings and Valuation

This table compares Cheesecake Factory and Shake Shack”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cheesecake Factory	$3.58 billion	0.83	$156.78 million	$3.19	18.81
Shake Shack	$1.25 billion	4.53	$10.21 million	$0.28	474.81

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

Summary

Cheesecake Factory beats Shake Shack on 9 of the 15 factors compared between the two stocks.

About Cheesecake Factory

The Cheesecake Factory Incorporated operates and licenses restaurants in the United States and Canada. The company operates bakeries that produce cheesecakes and other baked products for its restaurants, international licensees, third-party bakery customers, external foodservice operators, retailers, and distributors. It operates restaurants under the brands comprising The Cheesecake Factory, North Italia, Flower Child, Fox Restaurant Concepts. The Cheesecake Factory Incorporated was founded in 1972 and is headquartered in Calabasas, California.

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.