A move lower in Shake Shack shares was justified after Q3 comps fell short of expectations, Stump said in the Tuesday upgrade note. (See his track record here.)
Yet there's little reason to believe there are fundamental problems in Shake Shack's business — and the comp shortfall could be attributed to new store timing rather than a fundamental issue, the analyst said.
On a trailing one-year basis, the restaurant chain has shown a positive same-store sales contribution despite the fast-paced opening of new locations, Stump said.
Looking beyond Q3, Shake Shack's same-store sales can turn positive and grow at a low-single-digit rate over the next year, the analyst said.
Growth is likely to come from new store openings outside of the core New York City region, along with the potential addition of menu items and delivery options, he said.
Shake Shack shares are now trading at around 22 times estimated 2019 EV/EBITDA, a discount to the its historical 32 times multiple dating back to the company's 2015 initial public offering.
While the multiple isn't cheap compared to peers, it's sufficiently attractive enough for investors looking for a long-term growth story, according to Longbow.
The sell-side firm's $60 price target is based on 28 times 2019 EV/EBITDA; a multiple as high as 30 times could be warranted over time, Stump said.
Shake Shack stock was trading up 5.85 percent at $50.29 at the time of publication Tuesday.
Longbow Steps To The Sidelines On Shake Shack
The Street's Reaction To Shake Shack's Q3
Photo by Dustin Blitchok.
Latest Ratings for SHAK
|Nov 2018||Longbow Research||Upgrades||Neutral||Buy|
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