Shake Shack's Quarter Was Great, But Valuation Still Holding Back Buyers

• Shake Shack Inc SHAK has seen an 11.18 percent increase in its share price since the low of $39.05 on February 17.
• Longbow’s Alton Stump has maintained a Neutral rating on the company.
• Although the company has reported “impressive” Q3 results, the Neutral rating has been maintained due to valuation.

Analyst Alton Stump stated that the company reported its 3Q15 EBITDA ahead of the estimate and the consensus, with comparable sales rising an “impressive” 17.1 percent during the quarter, meaningfully ahead of expectations.

According to the Longbow report, “Shake Shack’s impressive reported comparable sales growth in 3Q15 provides evidence that fast-casual burger chains continue to gain share within the domestic restaurant industry.”

Related Link: Shake Shack Posts Upbeat Q3 Results, Issues Strong Revenue Forecast

Management has raised its revenue and comparable sales growth guidance for 2015, while guiding to total revenue of $237-$242 million, with comp sales growth of 2.5-3.0 percent and 8 international license openings for 2016.

“While we still have concerns related to the valuation carried by SHAK, the company’s impressive comp acceleration reported over the last four quarters could set the stage for further comp upside in coming quarters driven in large part by incremental rate pricing/mix,” the report added.

The EBITDA estimate for 4Q15 had been raised to reflect higher comp sales growth and operating leverage. The EBITDA estimates for 2015 and 2016 have also been raised, as have the EPS estimates for 4Q15, 2015 and 2016.