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6 months ago
Time to Nibble at Shake Shack? | $SHAK
Investors in Shake Shack, Inc. (NASDAQ: SHAK) have had a very difficult 6-months. Their willpower has been tested thoroughly in 2019, after a 45% drop from the early September-highs at just above $105. Not only have shareholders have had to deal with this decline, but they had the pleasure of watching stockholders of Chipotle (CMG) rally 80% in the same time period – much be stomach churning. SHAK cannot yet be considered cheap: trading at a 97 P/E ratio, while Chipotle trades at a 78 P/E. Bulls will, however, point to the fact that SHAK has a impressive 23% margin. On the other foot, CMG now only has a 21% margin and trades at 3.4 forward sales estimates; which is well above the 2.5X forward sales that the market has assigned the company.
The reason that both of these companies have such high valuations is simple. Those figures are based on revenue growth and expansion rates. SHAK also has the upper hand in this regard, with CMG’s +12.5% growth rate vastly inferior to SHAK’s 25% projected growth. Momentum and sentiment, however are, with CMG and until Shake Shack can regain trust within the investor community, the stock will continue to lag.
The short interest in Shake Shack is currently high at 16% and as earnings approach on February 4th, this could be a tailwind for a sustained recovery.
Now, Let’s have a Look at the Technical Setup for $SHAK, and Most Importantly, the Longer-term Weekly Chart.
The Weekly Chart is Painting an Optimistic Picture:
- RSI has reversed off historical support.
- Stochastic has had a much needed reset and is now ready for a bullish move higher.
- Histogram is already moving higher as selling subsides.
- The stock has retraced to the Fibonacci golden pocket, technical respected.
- Sellers capitulated.
- Stock is 40% down from September highs.
Some Key Factors to Consider on the Daily Chart are:
- 7/12/34 moving averages now support.
- Point of Control level has been crossed above. (redline)
- $68 the nest area of heavy price action.
- Above the gap start @ $71.78 price resistance greatly decreases.
- RSI in very strong uptrend.
- If MACD crosses above zero it will signal the shorts to cover.
When we consult the 4-hr chart we, then see the impressive bottoming process that is taking place and that the local area of resistance is $62.65 – that has been the key resistance level for this time-frame.
Targets to consider:
Short term: $68.00
Medium term: $71.78 – Start of large post earnings gap on chart.
Longer term: $83.00 – Gap close.
A break above the $63 could possibly be a safe entry on SHAK, after recently breaking above the short term 4-hr resistance level.