On April 5, 2017, Goldman Sachs lowered its price target for Shake Shack (SHAK) from $33 to $30. It also lowered its EPS estimates for 2017, 2018, and 2019, fearing saturation risk from the opening of new restaurants.
The lowering of SHAK’s price target and EPS estimates may have made investors skeptical of Shake Shack’s future earnings, leading SHAK’s stock price to decline. On April 5, 2017, Shake Shack was trading at $32.45, which represents a 2.1% fall from its previous day’s closing price.
Since the beginning of 2017, Shake Shack (SHAK) stock has fallen 9.3%. The lower-than-expected 4Q16 same-store sales growth (or SSSG), fear of cannibalization of customers by new restaurant openings, and lower sales growth in restaurants outside New York City led to a decline in SHAK’s stock price. In 4Q16, the company posted SSSG of 1.6% against analysts’ estimate of 3.2%.
During the same period, SHAK’s peers Panera Bread (PNRA) and Chipotle Mexican Grill (CMG) returned 52.6% and 19.9%, respectively. The broader comparative index, the SPDR S&P 500 ETF (SPY) (SPX), has risen 5% year-to-date. SPY invests in restaurant companies such as McDonald’s (MCD) and Starbucks (SBUX).
In the final part of this series, we’ll look at Shake Shack’s valuation multiple.