Shake Shack Inc. stock lost $5.98, or 10.1 percent, to $53.02 in midday trading.
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The restaurant may be taking it slow with the rollout of its new poultry sandwich, yet the ChickenShack-if it’s tasty enough-represents a massive opportunity for the budding chain, which recently went public and needs to grow fast to justify its huge valuation (it’s now valued at just under $2 billion, with less than 40 USA restaurants). This means investors have to pay an annualized fee that is equal to 150% of the total value of the short position to bet against shares of Shake Shack – a lot of money.
John Glass has a price target of $38 on Shake Shack stock and said there is “an extreme disconnect” between the stock’s price and what it’s actually worth. After the lock period expiration, company insiders will exercise their short position, which will increase the stock liquidity and eventually make the stock slightly liquid.
Morgan Stanley acknowledged Tuesday that the Shake Shack investment story isn’t all bad, saying that it will benefit from expansions into new markets – like Los Angeles and the greater Phoenix area – as well as limited time offers (like the ShackMeister burger and shakes-of-the-week) that carry premium pricing and boost comps. Since IPO the fast-casual retailer has grabbed many headlines by opening stores at high profile locations and attracting media attention, said the analyst. One research analyst has rated the stock with a sell rating, seven have assigned a hold rating and one has given a buy rating to the stock.
Despite the likely fanfare that will ensue, Morgan Stanley analysts don’t seem to care. The stock has a 12-month consensus target price of $44.25, which has a downward potential of 25% compared to the current trading price.
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So far, the market seems to agree with the Morgan Stanley. Since its IPO in early February, the stock has surged 28.5%.
