Shares of burger chain Shake Shack Inc (NYSE:SHAK) rallied Thursday on the back of its first earnings report as a publicly traded company … but not until it scared the pants off investors with an initially weak reaction.
While Shake Shack still is decidedly young as a publicly traded company, active investors and traders now have a well-defined area of support to lean against on the long side after Thursday’s wild post-earnings reaction, and should consider a trade in SHAK stock.
Shake Shack Earnings
Shake Shack’s Q4 earnings came out to … well, not earnings. SHAK posted a loss of 5 cents per share, which was worse than analyst expectations for 3 cents. However, had it not been for IPO expenses, the loss would’ve only been a penny per share. Also, revenues did end up beating the Street, with its $34.8 million up more than 50% on a year-over-year basis.
As I’ll say about any initial public offering, SHAK stock has yet to find a rhythm, and through a technical lens needs to show traders which moving averages and support/resistance levels it will tend to respect in the next six to 12 months.
From a more fundamental perspective, analysts still need to get their heads around Shake Shack’s more realistic post-IPO growth rates, as well as other nuances. Also of note is that most IPOs see a honeymoon phase during which the stock rallies sharply for a few weeks/months. This honeymoon period sometimes sets in right after the IPO, but more often than not takes a few weeks to materialize.
If Thursday’s bullish action in the SHAK stock price sees any follow-through buying at all, we might just be seeing the start of a more meaningful multiweek rally.
SHAK Stock Charts
Since its IPO on Jan. 30, SHAK stock has largely traded in a range with no real conviction in either direction, maybe because investors were waiting around for Wednesday’s earnings report for more clarity.
After Shake Shack initially sagged at Thursday’s open, a nearly 18% intraday rally resulted in the stock forming a so-called outside day or bullish engulfing candle, which fully engulfed the previous day’s trading range. The rally also was the second-largest volume day since the IPO date, and a new high daily close that pushed SHAK past the horizontal resistance line (black).
Looking at the closer-up multiday 15-minute chart, we see that Thursday’s rally in SHAK only took about 30 minutes to begin to materialize as buyers quickly gobbled up the stock and closed the nearly 10% down-gap.
In other words, Thursday’s intraday rally has many qualities of a meaningful bullish reversal day that could see follow-through buying, and thus a pickup in upside momentum in coming days/weeks.
Active investors and traders could consider buying the stock above $47 for a move into $52.50 while any meaningful reversal of Thursday’s rally would negate the setup in the near term.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
