Shake Shack Drops as Slower Growth Strains Lofty Valuation

Are Investors Hungry for Shake Shack?

Shake Shack Inc. tumbled the most in almost seven months after slowing growth raised concerns about the burger chain’s lofty valuation.

The company expects same-store sales to rise 2.5 percent to 3 percent in 2016, according to a statement on Monday. That compares with an increase of 13.3 percent in 2015.

Though the forecast reiterated a view the company gave in November, investors may have been looking for a rosier outlook from the company, which has one of the richest valuations in the restaurant industry. As of Friday, the company’s price-to-earnings ratio was about 323, compared with 27 for the Standard & Poor’s 500 Restaurants Index.

“It’s growing into earnings, but maybe just not growing into earnings fast enough for some people,” said Bloomberg Intelligence analyst Michael Halen.

The stock dropped 12 percent to $37.23 at the close, the biggest decline since Aug. 13. The shares are down 6 percent this year.

IPO Frenzy

Shake Shack held its initial public offering in January 2015 and saw its shares surge, fueled by optimism that the company could grow from a cult favorite into an international chain. Given the expectations, it’s hard for even good earnings to be “good enough,” Halen said.

The company also reiterated its revenue forecast for 2016, predicting $237 million to $242 million. Analysts estimate $240.3 million on average, according to data compiled by Bloomberg.

Fourth-quarter earnings were 8 cents a share, excluding some items. Analysts had projected 7 cents on average. Same-store sales grew 11 percent in the period, topping the 7.3 percent average estimate compiled by Consensus Metrix.

Shake Shack also said it expects labor expenses to hurt results this year. The addition of a chicken sandwich to the menu has added to its costs as well.

(A previous version of the story was corrected to fix an incorrect time reference.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE