Investors looking for the next Chipotle Mexican Grill (CMG) vaulted Shake Shack Inc (SHAK) into the atmosphere after the burger chain went public in January. Shares opened at $21, but quickly doubled and then tripled, hovering at a high of $95 last May before falling back to earth.
The flash crash we saw in August and the market-wide selloff we’re currently enduring have pushed SHAK stock down to a third of its previous high — a loss of 23% over the past three months, while the S&P 500 is down just 12% from its highs in early November.
Then in the brief market lull we saw Tuesday morning, SHAK popped over 6%, hinting that the stock has the potential to reclaim its lost ground.
I think there’s reason to be optimistic, too: Shake Shack’s fundamentals are solid, and management has easily matched or exceeded the Street’s expectations each quarter so far thanks to conservative guidance.
A share price of $31 means SHAK is at a post-IPO low — an attractive entry point for an underperforming stock with impressive long-term potential. Should the company’s previous trend continue, earnings could blow analysts’ fourth-quarter predictions for 7 cents a share out of the water.
Although SHAK had only about 40 locations at the end of last fall, management expects to open at least a dozen or more in 2016. Same-store sales were up double digits in 2015, and its newest locations in Las Vegas and Chicago are blistering past estimates as well, with average weekly sales increasing 9.6% to $103,000 in the most recent quarter.
Of course, SHAK wouldn’t have seen any of that success if it wasn’t pumping out seriously high-quality food. Customer ratings are sky-high and its newest menu addition, the Chick’n Shack sandwich, is selling out everywhere.
Brand equity is surprising for a company of Shake Shack’s size too, boasting by far the highest followers-per-store ratio across social media compared to other similar food stops.
The stock hasn’t been cooperating, but I don’t think it’s because there is something fundamentally wrong with the company, as part of the blame was due to SHAK’s insane valuation.
Once the market regains its footing and starts paying attention to this dark horse, SHAK could slingshot to the front of the pack again.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
