Better Buy: Shake Shack Inc. vs. Burger King (RBI)

Perhaps no two fast food chains better represent the opposite ends of the industry thanShake Shack Inc(NYSE: SHAK) andBurger King-parentRestaurant Brands International(NYSE: QSR).

The Danny Meyer-backed Shake Shack is the closest thing on the market to a boutique fast-food chain, as the burger baron has only 127 locations as of the end of March. Meyer defines it as a "fine casual" concept, a step above fast casual with the influence of fine dining.

Burger King, on the other hand, has zealously pursued the low end of the fast-food market, breaking the dollar barrier with a 5-for-$4 meal, introducing hot dogs, and trying to beat its competitors on price above all else.

Image source: Shake Shack.

Structurally, the two companies also operated much differently. Shake Shack prefers to keep its restaurants company-owned, restricting franchises to international territories and unique domestic situations like stadiums and airports. Restaurant Brands International has taken a much different approach, franchising nearly all of its restaurants, expanding aggressively abroad, and spending on marketing to drive sales and support franchisees.

Let's take a closer look at how each stock stacks up today to see which is the better buy today.

1. Growth

Both companies are focused on growth, but in different ways. Shake Shack has been expanding rapidly, opening new locations in both developed market and brand-new ones.

In its first quarter this year, revenue jumped 41.7%, largely driven by new restaurant openings. During that time, the number of company-operated restaurants grew by more than 50% to 71, while total restaurant count grew by 44% to 127. Same-store sales actually fell 2.5% in the quarter, but that metric includes less than half of company-owned stores.

Since its IPO in 2015, Shake Shack management has maintained that it sees capacity for 450 company-owned restaurants in the US, or more than six times its current level. The company's ability to grow its store count to hit that number will be the greatest determinant in its overall growth.

Restaurant Brands International, which also owns Tim Horton's and recently acquiredPopeye's Louisiana Kitchen, is expanding quickly as well, but on a much larger base.

RBI now has more than 23,000 restaurants around the world, and saw its restaurant count grow by about 5% over the last quarter. Because of its franchise model, bottom line growth was faster as adjusted earnings per share increased from $0.30 to $0.36.However, RBI's same-store sales growth also slowed down in the quarter, falling 0.1% in the quarter as the restaurant industry has been challenged by falling mall traffic and food deflation, which has caused lower prices at the supermarket.

2. Valuation

Not surprisingly, the slower-growing of these two stock presents the better value according to conventional metrics. Both carry lofty P/E multiples, but Restaurant Brands International is the cheaper of the two at an earnings multiple of 43 versus Shake Shack, which trades at a P/E of 69. RBI is also the only one of the two to offer a dividend, paying a current yield of 1.2%.

Investors clearly have big growth expectations of both stocks, as both companies are expected to continue their breakneck expansion. However, Restaurant Brands International's franchise model has been more reliable in generating steady profit growth, and carries less risk, as the lower P/E valuation indicates.

And the winner is...

Both stocks IPO'ed within a month of each other and as the chart below shows, RBI has been the clear winner of the two.

QSR data by YCharts

RBI has steadily executed on its strategic plan to open new stores, cut costs, and grow comparable sales, resulting in the stock's outperformance. Shake Shack, on the other hand, may have been the victim of unrealistic expectations, as the stock quickly came back to earth following an early post-IPO rally. While Shake Shack may be more appealing to long-term growth investors, as the stock should eventually become a winner as it adds more stores and gains leverage, RBI seems the generally better choice. The company has executed its strategy effectively, and after the recent Popeye's acquisition, it has a brand new revenue stream to play with. RBI should continue to reward investors.

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Jeremy Bowman owns shares of Shake Shack. The Motley Fool is short Shake Shack. The Motley Fool has a disclosure policy.