Are Shares of This Burger Chain a Buy Despite Northcoast Downgrade?

This New York City-based burger chain owns, operates, and licenses restaurants in the United States and worldwide. Since the original opening in 2004, the brand has expanded to more than 300 outlets in 32 U.S. states and more than…

100 overseas locations. Shake Shack Inc. (SHAK – Get Rating) is continuing its efforts to redefine the industry landscape and deploy new technologies to fulfill the demands of consumers through strategic partnerships.

However, the stock has declined 31.5% in price over the past nine months and 6.4% over the past three months. Furthermore, closing yesterday’s trading session at $83.77, the stock is currently trading 39.5% below its 52-week high of $138.38, which it hit on January 27, 2021, indicating bearishness.

Also, following the company’s failure to meet the consensus sales estimate in its recently released third-quarter results, and lower-than-expected projections, Northcoast Research downgraded the stock to Neutral from Buy yesterday, which contributed to a 7.8%  price decline.

Here is what could influence SHAK’s performance in the upcoming months:

Inadequate Financials

SHAK’s operating expense surged 43.5% year-over-year to $196.54 million for the third quarter, ended September 29, 2021. Its operating loss came in at $2.65 million. The company reported a $2.18 million net loss, while its loss per share was  $0.06 for this period.

SHAK’s revenue increased 48.7% year-over-year to $193.9 million but missed the $199 million consensus estimate by 2.6%. The company expects its total revenue for the current quarter to be $193.5 million – $200 million, which is below analysts’ expectations.

Weak Profitability

SHAK’s 33.2% trailing-12-months gross profit margin is 7.3% lower than the 35.8% industry average. Also, its ROC, net income margin, and ROA are negative 0.9%, 2.6%, and 1.3%, respectively. And its  $56.36 million trailing-12-months cash from operations is 71.1% lower than the  $195 million industry average.

Stretched Valuation

In terms of forward Price/Book, the stock is currently trading at 9.42x, which is 148.9% higher than the 3.78x industry average. Also…

 

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