Reporter's Notebook
Chicken can't save Shake Shack stock

Chicken can't save Shake Shack stock

This post is part of the Reporter’s Notebook blog.

This morning, Shake Shack Inc. introduced ChickenShack, its long-awaited chicken sandwich, in a summertime test at three locations in Brooklyn.

Not surprisingly, members of the New York-centric media couldn’t get enough of it. Business Insider said it launched a “Chick-fil-A killer.” Quartz said that it “takes aim at McDonald’s.” Multiple publications rushed out to the nearest Brooklyn location to try one.

Apparently, Wall Street didn’t notice this Chick-fil-A killing sandwich that will soon make Shake Shack the world’s biggest restaurant chain. The company’s stock fell as much as 10 percent today and, as I write this, is down 7 percent after a modest rally.

The culprit was Morgan Stanley Analyst John Glass, who downgraded the chain’s shares to “underweight” and said that there is an “extreme disconnect” between the company’s fair value and its current market price.

The decline in Shake Shack’s price today continues a string of price declines at the better burger chain.

The company went public in January at $21 a share, quickly shot up to $50 and closed up more than 100 percent at $45.90. The stock has been going up ever since, and by late May some wondered if it was headed for triple digits. The stock closed at $92.86 on May 22.

Investors have fallen out of love with the stock since. Even before the day started, at $59 a share, the stock was down more than 36 percent in the six weeks since then. Today’s decline has the chain down more than 40 percent from that all-time high.

Some investors, Glass wrote, bought into its “brand-related euphoria” when they bought Shake Shack at high prices.

Shake Shack has a strong brand and been the beneficiary of an incredible amount of enthusiasm for fast-casual concepts that have growth potential. But few of the fast-casual brands that have gone public have generated this level of euphoria — as the chicken sandwich enthusiasm demonstrates. Nobody gushes quite that much over new products at Habit Burger or Wingstop.

Yet its decline comes as no surprise. As the Wall Street Journal noted, no analyst has a Buy rating on the stock, and there’s been mounting concerns about the chain’s valuation. Eventually, worry about valuation overcomes any brand-related euphoria.

TAGS: Stock Data
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