What: Shake Shack Inc (NYSE:SHAK) shares were cooking last month as the stock jumped 13%, according to data from S&P Capital IQ. The stock soared toward the end of the month as investors were encouraged by a lack of selling following the expiration of the post-IPO lock-up period.

SHAK Chart

SHAK data by YCharts

So what: As you can see from the chart above, July was a wild ride for the burger chain. In fact, the stock was down nearly 20% at one point before surging toward the end of the month. Shares had been falling steadily from their peak above $90 in May as concerns about the company's valuation mounted.

Source: Shake Shack

After falling below $50 in mid-July, the stock got a bit of a jolt -- at the end of the lock-up period, when underwriters and insiders neglected to take advantage of their first chance to sell stock since the IPO, newfound confidence helped shares spike in just a couple of days. Short-covering also likely contributed to the run-up, as 38% of the company's stock had been sold short as of July 15, creating the high possibility of a short-squeeze.

Now what: Shake Shack shares have been volatile since the company's January IPO as determining a fair valuation for the much-loved burger chain has been difficult. The company is barely profitable overall, but its average unit volume sales above $4 million are easily the best in the fast-food industry, and restaurant-level margins are strong as well, meaning long-term profits should not be a concern.

The biggest question mark for investors remains Shake Shack's unit growth. The company has promised to expand by about 10 restaurants a year for the foreseeable future, and sees room for 450 locations in the U.S. That could support annual contribution profits of $300 million to $400 million or more, but the company may have to do more to convince the market of its ultimate value as it already carries a market cap around $2.5 billion. International licensing arrangements remain a lucrative option, and the chain recently added a new ChickenShack sandwich to its menu that could bring in new customers.

Expect the volatility to continue for this fan-favorite stock as opinions are strong among bulls and bears, and look for a big swing Monday when the company reports second-quarter earnings.


Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.