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Has Shake Shack Stock Bottomed Out?

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SHAK’s performance

On May 23, Shake Shack (SHAK) stock was trading at $58.99, a fall of 6.6% since its announcement of its first-quarter earnings results on May 2.

The company was also trading at a discount of 15.9% to its 52-week high of $70.12 and at a premium of 45% to its 52-week low of $40.67.

In the first quarter, Shake Shack posted revenue of $132.6 million, beating analysts’ revenue estimate of $127.2 million. Its adjusted EPS were in line with analysts’ expectation of $0.13. The company’s SSSG (same-store sales growth) came in at 3.6%, outperforming analysts’ expectation of 0.8%. After Shake Shack reported its first-quarter earnings results, its management raised its SSSG and revenue guidances for 2019.

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Despite its strong first-quarter performance, SHAK fell due to the contraction in its operating margin. Surges in the company’s cost of goods sold, labor costs, and other expenses increased its operating expenses. The hike in its operating expenses appears to have made investors skeptical about its future earnings potential, leading to the fall in its price.

Year-to-date performance

Despite the recent fall in its share price, Shake Shack has returned 29.9% YTD (year-to-date) as of May 23, outperforming the broader market. During the same period, the S&P 500 Index has returned 12.6%. In comparison, SHAK’s peers Chipotle Mexican Grill (CMG) and McDonald’s (MCD) have returned 54.5% and 12.1%, respectively.

Valuation multiple

The decline in Shake Shack’s stock price since the announcement of its first-quarter earnings results has lowered its valuation multiple. On May 23, SHAK was trading at a forward PE multiple of 94.7x compared to 97.5x before the announcement of its first-quarter earnings. On the same day, Chipotle and McDonald’s were trading at forward PE multiples of 46.0x and 24.0x, respectively.

Shake Shack was also trading at a forward PE multiple of 103.2x analysts’ 2019 EPS estimate of $0.57 and 83.1x analysts’ 2020 EPS estimate of $0.71, with its EPS expected to fall 19.5% in 2019 and rise 24.2% in 2020.

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