What goes up, must come down…and apparently, even deluxe burger joint Shake Shack shares can’t escape this basic law of nature. Shake Shack shares slipped close to 10% in early trading on Wednesday, carrying over from a 6% slide in the stock on Tuesday.
Don’t feel too sorry for Shake Shack shareholders, however, as those who bought into the IPO are still sitting on a 69% gain even after the correction of the last two days. Of note, the gourmet burger firm’s stock reached an all-time high of $96.75 last Friday.
Shake Shack mania taking a breather
At their peak, shares of Shake Shack had more than doubled since its end-of-January IPO. Investors are clearly excited over the firm’s expansion plans, shooting for at least 10 new restaurants in the U.S. this year as well as international growth. Rumors are even swirling regarding expanding the menu to include chicken.
However, analysts point out that Shake Shack has a P/E of 600 times forward earnings. Moreover, every single equity analyst who covers thestock rates it as a Hold, very rare for a stock on a huge run.
Keep in mind that Shake Shack is in an unusual situation. It currently has both a low free float and a very high short interest. Given that just 5.7 million (48%) of the company’s 12 million shares outstanding are available to trade (the rest are locked up), the stock tends to trade with high volume. Moreover, close to 2.4 million shares are held short. Even though that is just 20% of the shares outstanding, it still represents more than 42% of the float given the low number of shares available for trading.
Given market and trading conditions over the last month, the average company in the S&P 1500 index would turn over its float (total available shares) about 2.5 times in a year. Shake Shack, on the other hand, is churning 19% of its float a day on average, so it has been turning over its float in just over five days.
Shake Shack insider lockup expires at end of July
Nothing can last forever, and even the highest-flying stocks eventually correct. The slide in Shake Shack’s share price over the last couple of days could be a sign of things to come given the lockup for company insiders expires on July 29th, and nearly all of the firm’s outstanding will be available for trade at that point. Clearly, the demand for shares will have to continue to grow strongly to avoid a sell off after the lockup expiration later this summer.