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Can You Imagine How Chuffed Shake Shack's (NYSE:SHAK) Shareholders Feel About Its 186% Share Price Gain?

Simply Wall St

Shake Shack Inc. (NYSE:SHAK) shareholders might be concerned after seeing the share price drop 11% in the last month. But in three years the returns have been great. In fact, the share price is up a full 186% compared to three years ago. So the recent fall in the share price should be viewed in that context. Only time will tell if there is still too much optimism currently reflected in the share price.

See our latest analysis for Shake Shack

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Shake Shack achieved compound earnings per share growth of 8.8% per year. This EPS growth is lower than the 42% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 175.24.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NYSE:SHAK Past and Future Earnings, October 22nd 2019

We know that Shake Shack has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Shake Shack will grow revenue in the future.

A Different Perspective

We're pleased to report that Shake Shack rewarded shareholders with a total shareholder return of 75% over the last year. That gain actually surpasses the 42% TSR it generated (per year) over three years. The improving returns to shareholders suggests the stock is becoming more popular with time. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.