Valuations Just Cannot Support Shake Shack Shares
Shake Shack sold off early in Tuesday's session, and one key analyst cut its ratings despite relatively decent earnings.
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After the markets closed on Monday, Shake Shack Inc. (NYSE: SHAK) released its fourth-quarter earnings report, and analysts and investors alike did not enjoy the results. The stock sold off about 10% early in Tuesday’s session, and one key analyst cut its ratings despite relatively decent earnings.
The company had $0.08 in earnings per share (EPS) on $51 million in revenue, compared to the consensus estimates from Thomson Reuters that called for $0.07 in EPS on $50.44 million in revenue. In the same period from the previous year, the company posted a net loss of $0.01 per share on $34.77 million in revenue.
Total revenue increased about 47% in the fourth quarter, and was composed of shack sales increasing 49% to $49.3 million, with the remainder of the revenue made up in licensing. Same-store sales increased by 11% in the quarter as well, compared to the 7.2% from last year.
In terms of guidance for the 2016 full year, the company expects revenue to be in the range of $237 million to $242 million and same-store sales growth to be in the range of $2.5% to 3.0%. Consensus estimates call for $0.39 in EPS on $240.72 million in revenue.
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However, these incredible results still could not solve the problem for this up-and-coming burger chain.
The problem? Even after the stock dropped of roughly 10% or so, Shake Shack’s stock still trades at roughly 100-times consensus 2016 EPS and about 80 times 2017 consensus EPS.
Because this quarter wasn’t absolutely phenomenal, in which the earnings can start catching up to the price and lowering the company’s P/E multiple, it is no doubt that investors are abandoning ship and dropping the share price.
Barclays weighed in on Shake Shack with an Equal Weight rating and lowered its price target to $40 from $48.
Shares of Shake Shack were trading down more than 10% at $37.80 on Tuesday, with a consensus analyst price target of $42.00 and a 52-week trading range of $30.00 to $96.75.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
