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Why Shake Shack Inc. Shed 15% in a Week

By Motley Fool Staff - Mar 22, 2016 at 12:37PM

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It reported a great fourth quarter, but what investors are more interested in is the burger slinger's potential going forward.

After turning in a fantastic set of quarterly results, Shake Shack's (SHAK -2.60%) stock price fell 15% recently. In this segment from the Motley Fool Money podcast, Ron Gross, Jeff Fischer, and Chris Hill talk about the quarterly report, the stock price, and what expansion plans the company has in mind.

A transcript follows the video.

This podcast was recorded on March 11, 2016. 

Chris Hill: Shake Shack, falling 15% this week. Their fourth-quarter results looked pretty good, Ron, but their guidance, not so much.

Ron Gross: All about the guidance here. But the actual performance was amazing. Revenue up 47%, and comp sales up 11%. The company did really, really well. Guidance, as you said, was weak. There's no way they can maintain those comp sales at those levels, and that's what investors are focusing on, and have sold the stock off. This is one of those stocks that was priced to perfection for quite some time. Went public at $21, reached a high of maybe $96-ish, and has come down to $35 over the recent period, just because it was just not priced appropriately. It's still at 28 times EBITDA, it's still an expensive stock.

Hill: Wait a minute, wait a minute. It was almost $100 a share. I get that it was overpriced then. Now that it has had 67% shaved off its value, it's still overpriced?!

Gross: It's still overpriced. It's very minimally profitable. They only did about $1 million in profits for the quarter. So, that's what we have to focus on. The growth rates were and still are pretty impressive, but they're not bringing that to the bottom line yet. They've got some work to do. 

Jeff Fischer: That was one of those IPOs that was so over-hyped. And we looked in Motley Fool Pro at shorting the stock, and you could either not get shares, or, if you did, it was a 20% to 30% annual fee to short.

Gross: And it's a pretty small company. 75-ish restaurants, $500 million market cap. It's a micro-cap company, at this price.

Hill: But, to Jason's point about Bojangles', they've got over 600 locations. If you are looking at Shake Shack and thinking that they can get from 75 to, I don't know ...

Gross: 450 is their goal.

Hill: OK.

Fischer: I love that Shake Shack was so exciting as an IPO. Is this the 1950s? It's Shake Shack, they're not doing anything innovative.

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