What’s Shaking At Shake Shack (NYSE: SHAK)

A 4.5% jump in Tuesday’s session was enough to make shares of fast-food burger joint Shake Shack (NYSE: SHAK) among the best performing of US equities on a day when most of the major indices finished lower. Even though shares had traded up as much as 10% at one point before selling into the close, it was still a good day and a much-needed green one. 
After a poor Q1 earnings print, shares had fallen 20% in the two weeks before yesterday’s pop so investors would have been growing impatient for some kind of bounce. The recent slide has compounded the general selloff seen in the New York-headquartered company since February, a selloff that even with yesterday’s pop still has the stock trading at a 30% discount to its all-time highs. However, we’ve been starting to see more and more buying opportunities open up as a result of the recent weakness in equity markets and there’s a case to be made for Shake Shack adding its name to that list.

Double Upgrade

Before the bell rang to start Tuesday’s session, both Goldman Sachs and Wedbush Securities were out with upgrades to Shake Shack’s stock. Analyst Jared Garber of the former lifted them to a Buy rating from a Neutral, and highlighted the stock’s long term potential that’s been made all the more attractive by the recent bout of selling. In the context of the economic reopening and continuing COVID vaccine rollout, Shake Shack has been pinned as one of the more attractive re-opening stocks out there, in large part due to the war chest of cash they have on their balance sheet. Garber thinks that Wall Street is underestimating the company’s Q2 numbers and as such investors should anticipate an upside surprise when they’re released in about two month’s time. 

Wedbush Securities’s Nick Setyan followed much the same bullish line as he and his team moved Shake Shack to an Outperform rating from Neutral. In particular, the urban recovery is set to accelerate into 2022 and this can only bring a boost to Shake Shack's traffic. His $109 price target suggests there’s an upside of close to 25% to be had from Tuesday’s closing print of $88. 

We can see there’s an ongoing shift in Wall Street’s sentiment towards the company, which is based primarily on macro factors. But there are also some compelling technical factors to take into account. The stock’s RSI, for example, fell as low as 17 on the daily chart only two weeks ago. This suggests extremely oversold conditions, but because shares have been able to consolidate and not fall further, that has now swung up almost vertically which points to solid buying momentum starting to become normal again. Interestingly, the stock spent much of Q4 consolidating its 2020 gains around the same level, so it’s fair to say shares are trading along some solid support lines right now. 

Considering The Long Position

On a similar note, the stock’s MACD is in the middle of a bullish crossover which confirms the swing in momentum from the bears to the bulls which the RSI suggests. The last time the MACD had a bullish crossover around the same time that the RSI was below 20 was in March of last year, in the depths of the pandemic-inspired crash. Despite not being a tech stock, Wall Street saw the value to be had in Shake Shack shares at the time and sent them up more than 100% in less than 3 months. While we may not be expecting quite the same bounce this time, there’s no arguing that the technicals are just as attractive as the fundamentals. 

For what it’s worth, Wall Street has been calling this a buying opportunity for some weeks now. Oppenheimer were out with a bullish call in the first week of May, saying “we believe Shake Shack is well-positioned for near-term beats and positive revisions to consensus sales, margins, and EBITDA estimates through '22E and beyond." Considering shares are trading down a further 20% since then, you can’t help but feel there’s a very attractive risk/reward set up in play.