Shake Shack Inc (NYSE:SHAK) is moving up 3% on hefty volume Wednesday, with traders attributing the bump to talk of McDonald’s Corporation (NYSE:MCD) acquiring the fast-casual chain.
It’s not hard to see why McDonald’s would want Shake Shack (and thus easy to start chatter on the subject). McDonald’s needs more than its all-day breakfast menu and various tests in small markets around the U.S. to continuously spur growth.
And surely McDonald’s has been hurt by the rise of fast-casual chains, where customers expect better ingredients and well-handled meals for a discount to straight-up casual dining.
In its last quarter, Shake Shack reported revenue growth of about 45% year-over-year, while sales at McDonald’s declined by about a percent. MCD’s a veteran, so slow growth is to be expected; but bringing a fast-growing fast-casual chain like SHAK under its fold could spark meaningful growth for MCD. At both companies, earnings are growing at a much more rapid pace than revenues.
If MCD were to make a move, now would be a good time. SHAK is setting up shop in New York’s Fulton Center (privy to hundreds of thousands of commuters), where it will serve breakfast sandwiches from 7 a.m. to 11 a.m. daily. What’s more, beef prices are down 15% in the second quarter YoY, which bodes well for restaurant earnings.
That’s the news that SHAK investors should be riding high on today, but speculative stocks are going to be just that — speculative.
So, on the face of it, it makes sense for MCD to just buy what it can’t beat … but what if it’s already beating them?
Bottom Line for SHAK, MCD
So far in 2016, MCD stock is in the green almost 4%. In comparison, SHAK is down 1.8%, Chipotle Mexican Grill, Inc. (NYSE:CMG) is off 13% while Brinker International, Inc. (NYSE:EAT) is down 8 basis points.
Heck, even Starbucks Corporation (NYSE:SBUX) is bleeding to the tune of 6% year-to-date.
The reality is that now Shake Shack has to contend with resistance at $39, and once the McDonald’s buyout rumors fade from existence, the volatile SHAK stock could be in for another drop.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
