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Shake Shack Stock Rose after Credit Suisse’s ‘Outperform’ Rating

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Jun. 25 2019, Updated 2:41 p.m. ET

Stock performance

Credit Suisse’s “outperform” rating for Shake Shack (SHAK) appears to have increased investors’ confidence. The stock was trading ~2.0% higher in early morning trade on June 25. The company has returned 46.9% YTD (year-to-date) as of June 24. Shake Shack has easily outperformed the broader equity market. The S&P 500 Index has increased 17.5% since the beginning of 2019. McDonald’s (MCD) and Chipotle Mexican Grill (CMG) have returned 14.8% and 67.7%, respectively.

The better-than-expected sales in the fourth quarter of 2018 and the first quarter and the higher 2019 guidance from the company’s management likely led to a rise in Shake Shack’s stock price.

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Valuation multiple

The increase in Shake Shack’s stock price since the beginning of 2019 has also raised its valuation multiple. As of June 24, Shake Shack was trading at a forward PE ratio of 104.5x compared to 62.3x at the beginning of 2019. McDonald’s and Chipotle were trading at a forward PE ratios of 24.4x, and 48.9x, respectively.

Shake Shack is still in a growth phase. The company has enormous scope to expand. The scope for expansion is valued highly by the market. The scope has allowed the company to trade at a higher valuation multiple.

Analysts’ recommendations

For 2019, analysts expect Shake Shack to report revenues of $586.2 million—a rise of 27.6% from $459.3 million in 2018. During the same period, the company’s adjusted EPS is expected to fall 18.3% to $0.58.

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