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Why Shake Shack Stock Jumped 44% in April

By Andrew Tseng – Updated May 5, 2020 at 9:43AM

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Has the company done enough to survive?

What happened

Shares of Shake Shack (SHAK 0.12%) surged 44.4% in April, according to data from S&P Global Market Intelligence. That move sent the stock from $38 per share to $55 during the month. For context, the stock had traded at a year-to-date high of $77 in February before bottoming at about $33 in March as the COVID-19 panic raged. 

So what

On April 2, Shake Shack provided a business update to the investment community. The bad news, although not too surprising, was that same-Shack sales (the company's version of same-store sales) fell 29% in March. This was after being down 2% year to date through the end of February. And during the last two weeks of March, sales at domestic company-operated stores fell by an average of 70%. This was the result of a heavily modified operating model at the restaurants that remained open with only takeout and delivery due to the COVID-19 pandemic.

A cheeseburger, fries, and a beer.

Image source: Getty Images.

The company quickly added third-party delivery partners Postmates, DoorDash, Caviar, and Uber Technologies' Uber Eats to its delivery partners. Previously, Shake Shack had an exclusive relationship with Grubhub but now needs to maximize its availability across all delivery platforms.

Perhaps the most consequential news was that the company's cash burn was between $1.3 million and $1.5 million per week at then-current operating conditions.

Then on April 17, the company provided preliminary first-quarter business results and announced it had raised $150 million in new equity capital

What now

Shake Shack is clearly in a world of hurt right now because of the pandemic, but the company has plenty of cash on hand. The roughly $250 million of cash it held after the equity raise, in light of the minimal amount of weekly cash burn, should allow the company to endure this period and participate in the eventual recovery. Investors who believe in the company's long-term growth story should take comfort.

Andrew Tseng owns shares of Shake Shack. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

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