Growing pains seen for Shake Shack

|About: Shake Shack (SHAK)|By:, SA News Editor

There's growing pains for Shake Shack (SHAK +1.1%) as the company adds more stores in markets likely to generate lower restaurant-level margins. It's all part of the Shake Shack growth plan, but also makes it difficult for the company to generate EPS beats, warns Buckingham Research analyst John Zoledis.

"We continue to like SHAK for its long-term growth opportunity, brand, and exceptional unit economics. The challenge continues to consist of two factors, one is valuation, which at 24x EV NTM EBITDA represents a lot of risk in the event of unforeseen events. The second is the income statement dynamic resulting from hyper-growth into lower AUV markets," he writes.

Shake Shack reports earnings on Thursday. Expect volatility with short interest on the restaurant stock at an elevated level.

Shares of Shake Shack are down 3.91% YTD.