Shake Shack Serves Steady Offerings of Strong Financial Results and Asset Appreciation (NYSE:SHAK)

Ned Piplovic

Shake Shack

Despite the financial strain of domestic and international expansion, Shake Shack, Inc. (NYSE:SHAK) has been delivering a steady streak of positive financial reports over the last couple of years, which translated to robust asset appreciation and double-digit-percentage total returns for the company’s shareholders.

After the initial public offering (IPO) in January 2015, the share price spiked more than four-fold to its all-time high of nearly $93 in the first four months. However, after peaking in mid-May 2015, the share price reversed direction and deteriorated slowly for the subsequent two years.

By September 2017, the Shake Shack stock had lost two-thirds of its value and dropped to its all-time low below the $31 level. However, since bottoming out in the last-quarter 2017, the share price embarked on the current uptrend. With just one substantial pullback in late 2018, the share price has nearly tripled above its all-time low in 2017 and it is just a few percentage points short of its all-time high from mid-2015.

Shake Shack met analysts’ earnings expectation in the first-quarter 2019 and beat expectations in the remaining three out of the last four quarters. The positive financial results and robust fundamentals drove the share price growth over the last two years.

The overall market correction in the last-quarter 2018, drove the Shake Shack price down briefly, which also pushed the 50-day moving average below the 200-day moving average at the beginning of December 2018. However, after bottoming out in late 2018, the share price resumed its uptrend and the 50-day average broke back above the 200-day moving average by mid-April 2019.

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The share price and the 50-day moving average continued their joint uptrends and the 50-day moving average is currently 36% higher than its 200-day counterpart. Additionally, the share price has been trading above both moving averages since the end of May. This arrangement of the stock price and the moving averages is one of the indicators that suggest a continuation of the current share price uptrend, at least for the next few periods.

 

Financial Results

On August 5, 2019, Shake Shack reported that its second-quarter total revenue increased 31.3% year over year to $152.7 million. While the bulk of the revenue increase stemmed from expansion and new store openings, same-store sales advanced at a respectable 3.6% as well. Furthermore, licensing revenue increased nearly 43% to $4.8 million.

Adjusted net income increased 18.5% to $25.9 million, which translated to adjusted earnings per share (EPS) of $0.27. Additionally, the current $0.27 EPS beat Wall Street analysts’ earnings expectations of $0.23 by 17.4%.

In light of its year-to-date financial performance, Shake Shack raised its total revenue guidance for full-year 2019 from between $576 million and $582 million to between $585 million and $590 million. Additionally, the company added four additional store openings — two licensed and two own stores — to its 2019 expansion plans.

Shake Shack

Share Price

The share price entered the trailing 12-month period on a minor downtrend that began in  mid-June 2018. the uptrend that began in late 2017. While the share price started recovering at the end of the third quarter, the overall market downturn in the last quarter of the year pushed the Shake Shack share price to its 52-week low of $41.01 by December 24, 2018. This low was down 30% compared to the share price level from the onset of the trailing 12 months.

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However, free from the downward pressure of the overall market pullback, the share price resumed its rapid upward trajectory. After regaining all its losses by late-March 2019, the share price advanced more before reaching its 52-week high of $91.61 on August 13, 2018. This advancement marked a total gain of more than 120% since the 52-week low in December 2018 and the most recent closing price is within 1.3% of the $92.86 all-time high from mid-2015.

After its 52-week high on August 13, the share price pulled back more than 2% and closed at the end of the next trading session at $89.48 against the massive market selloff that saw the Dow 30 Index dropped more than 800 points. However, even with the one-day pullback, the August 14, 2019 closing price was still 52% higher than it was one year earlier as well as 118% above the 52-week low from late December 2018.

Because of the share price spike after the IPO, the stock’s total gain of 95% over the past five years is lower than the three-year total gain of 137%. At this time, Shake Shack does not distribute any dividends. Therefore, the asset appreciation accounts for entire total gains.

 

Shake Shack, Inc. (NYSE:SHAK)

Headquartered in New York, New York and founded in 2004, Shake Shack Inc. owns, operates, and licenses Shake Shack fast food casual restaurants in the United States and internationally. In addition to standard fare of hamburgers fries and soft drinks, the chain also offers hot dogs, chicken, shakes, frozen custard, and other products, as well as beer and wine in its international locations. After being one of the fastest-growing food chains in its first decade and to secure a steady source of funding for its rapid expansion, Shake Shack became publicly traded in late 2014. As of August 2019, there were 163 locations in 30 U.S. states and the district of  Columbia. Except approximately dozen licensed locations, Shake Shack owned and operated all other U.S. restaurants. At the end of 2018, Shake Shack had restaurant in 10 international markets – Japan, Saudi Arabia, Kuwait, Oman, Qatar, Russia, South Korea, Turkey, United Arab Emirates and the United Kingdom. Since the beginning of the year, Shake Shack entered new international markets in China, Singapore, The Philippines and Mexico. With these new markets, the company now has 14 international markets supporter by approximately 80 restaurant locations.

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Ned-Piplovic

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.

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