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Will 2018 Be a Good Year for Shake Shack?

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Stock performance

2017 was a good year for Shake Shack (SHAK) stock with a 20.7% rise. The stock price of the company was driven by strong 3Q17 earnings, aggressive expansion of its business, and enactment of tax reforms.

In the last few quarters, customer traffic at restaurants was on the lower side, which led to greater competition, discounts, and the launch of value meals. The tax reform bill is expected to help restaurant companies break out of the price war, thus improving their margins.

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However, since the beginning of 2018, the stock price of the company has fallen 4.9%. After posting its 4Q17 earnings on February 15, 2018, Shake Shack’s management provided a cautious sales outlook for 2018, which led to a fall in the company’s stock price. The company’s management expects it’s 2018 revenue to be in the range of $444.0 million–$448.0 million, which was lower than analysts’ expectations. Also, the weakness in the broader equity market has led to a fall in the company’s stock price.

Peers Chipotle Mexican Grill (CMG), Jack in the Box (JACK), and Wendy’s (WEN) have returned 9.6%, -14.3%, and 4.5%, year-to-date, respectively. Also, the broader comparative indices, the S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR Fund (XLY) have returned 1.5% and 5.6%, respectively.

Series overview

In this series, we’ll look at Shake Shack’s 2017 revenue, SSSG, unit growth, EBIT (earnings before interest and tax) margins, and EPS (earnings per share). We’ll also cover management’s guidance and analysts’ estimates for 2018. We’ll end this series by looking at Shake Shack’s valuation multiple and analysts’ recommendations.

Let’s start our analysis by looking at Shake Shack’s 2017 revenue.

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