Why Analysts Are Not Impressed With Shake Shack

The original price range for the IPO was $14 to $16 per share, but the company raised the pricing to $21 per share and investors bid shares up nearly 125% for the first trade. On the IPO date, over 16 million shares changed hands and the day had a range of $45.12 to $52.50.

As we had previously said, whenever we see an enormous first-day jump like this we have to wonder how the underwriters failed to see the demand. Sure they want to see that their big clients make a profit on an IPO, but what about the company? Investors should have been happy with a solid 25% first-day gain and the company could have pocketed more cash.

Shares topped out at the IPO date at $52.50 and closed the day at $45.90. Since that date these points were the highest high and the highest close that the stock has seen. As great as the IPO was, shares have entered into a steady decline since that time.

Technically speaking, all the IPO buyers are up massively while a majority of investors who chased Shake Shack have only seen the price slowly dwindle.

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The analysts that have weighed in so far have not been incredibly optimistic for Shake Shack’s outlook:

• Barclays initiated coverage with an Equal Weight rating.
• Jefferies started it at a Hold with a $40 price target.
• William Blair started it with a Market Perform rating.
• Goldman Sachs initiated coverage with a Neutral rating and a $36 price target.
• J.P. Morgan started coverage of Shake Shack with a Neutral rating.
• Stifel started it with a Buy rating and a $50 price target, the one positive rating out of this group.

Shares of Shake Shack closed Monday down 7.3% to $41.60. In early trading Tuesday, shares were up 5.2% at $43.76. The stock has a post-IPO trading range of $38.64 to $52.50, and the market cap is $470 million.