Longbow Steps To The Sidelines On Shake Shack

Up more than 60 percent over the past six months, it might be time to stop buying Shake Shack Inc SHAK's stock, according to Longbow.

The Analyst

Longbow Research's Alton Stump downgraded Shake Shack from Buy to Hold.

The Thesis

Shake Shack's stock has shown strong momentum over the past few months as the burger chain demonstrated a "more stable" comp growth performance in recent earnings reports compared to prior years, Stump said in a note. The company's growth over the past few years outside of its Manhattan home base suggests the company can see success not only across the U.S., but across the world.

The stock is now trading north of Stump's previous $54 price target, however, and valued at 32x 2018 EV/EBITDA estimates which "accurately reflects" the company's short- and long-term potentials -- including benefits from tax changes and a better than expected unit growth guidance, the analyst wrote. As such, investors may want to consider becoming "opportunistic" if the stock falls near the high $40s and low $50s range.

Bottom line, valuation is the sole factor in no longer holding a bullish stance on the stock.

Price Action

Shares of Shake Shack were trading nearly flat Wednesday at $57.83.

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Image credit: m01229 from USA (Shake Shack burger and fries) [CC BY 2.0 ], via Wikimedia Commons