Shake Shack (SHAK) is taking a hard beating this morning as investors reacted icily to the pricing of the company’s recently announced secondary offering. SHAK stock is sitting on nearly double-digit losses today alone — a high-volume slide that translates to the shaving of $220 million in market cap and represents a dip below the stock’s 50-day moving average.
When the market closed yesterday, Shake Shack stock was worth a little less than $65 per share, so it’s unsurprising that investors were unimpressed by the $60 price tag the company slapped on its secondary offering after the bell.
(One thing to note: The offering isn’t meant to raise money, but give some early investors a chance to cash out some of their profits. More specifically: “All of the shares in the offering were offered by the Selling Stockholders and the Company will not receive any proceeds from the sale of these shares by the Selling Stockholders. The closing of the offering is expected to occur on August 18, 2015.”)
Shake Shack Still on Shaky Ground
The sudden downward movement continued what’s been a slightly volatile market debut for Shake Shack. Despite the overall upwards momentum — shares went public early in the year at $21 and are still worth almost triple that after today’s decline — some investors have likely gotten burned big-time trying to trade the upscale fast food chain.
SHAK stock was worth more $92 in May, for example … meaning the current price just under $60 represents a grand 35% slide.
It’s easy to understand the polarizing sentiment surrounding Shake Shack, though. There’s a lot to like, especially with regards to the growth this seller of fancy burgers, fries and shakes has been post. A quick sample from the most recent earnings report alone includes:
- Earnings of 9 cents per share, which tripled the analyst consensus, on revenue growth of 75%
- Same-store sales growth just shy of 13%, which bested the forecast 8% handily
- A subsequent 10% rise in SHAK stock
Looking forward, analyst earnings estimates are marching in the right direction for the current quarter and current year. Long-term earnings growth is expected to average 30% annually, while sales are expected to grow by 50% in 2015.
Add it all up and it seems like a mouth-watering combo — until you consider the fact that such growth has already been more than baked in to SHAK stock. This isn’t just evidenced by the initial public explosion of SHAK stock; it was also the sentiment in July from Goldman and Morgan Stanley, as each slapped Shake Shack with a “sell” recommendation.
Even looking more broadly, the median price target from the analyst community is $43. While these targets can be slow to adjust and thus a reflection of just how quickly SHAK stock ran up, the fact that such a target represents a nearly 30% decline even after today’s beating is more than a little concerning.
That target is also right around the stock’s recent low around $45, which came in mid-July and which could be the next destination for shares, considering today’s high-volume collapse through the 50-day moving average.
Stay away from Shake Shack stock after today’s brutal beating. Sentiment has turned, and even the recent cool-down is far from enough to make shares anything resembling reasonably priced.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.