No one on Wall Street likes Shake Shack

Published Tue, Jul 7 201510:59 AM EDTUpdated Sat, Oct 14 201710:44 AM EDT

Shake Shack has lost the typically uber-bullish crowd that is Wall Street analysts, and it just got worse Tuesday. "Any way you stack it ... SHAK is expensive," Morgan Stanley's John Glass wrote in a report in which he downgraded the burger chain and hot 2015 IPO to "underweight." He's the first analyst to recommend selling the stock, but Shake Shack doesn't get much support elsewhere as the six other analysts that cover it call the shares a "hold," the Street's wink-and-a-nod version of a sell rating. The average 12-month price target for the stock is $43.50, representing a 26 percent drop from Monday's close of $59 a share. "While a powerful emerging brand executing on all its early commitments to its investors, stock is overpriced, in our view, potentially reflecting both technical market dynamics as well as 'brand'-related optimism that is not supported by fundamentals," Glass wrote. Shake Shack shares doubled from their IPO price the day of its debut in late January. The stock then went on to double again before turning over in late May. Since that high, the stock is off almost 40 percent through Monday's close. The stock's price/earnings ratio based on 2016 Morgan Stanley estimates is 441 times. The average 2016 P/E of other high growth food chains like El Pollo Loco and Noodles & Co is 77 times. Read More Here's the most loved stock on Wall Street Glass believes there's been too much hype about the fast casual chain that launched in New York city by restaurateur Danny Meyers. The fact that there are very few shares out there available for trading also added to the overvaluation of the stock. The report states: "In our view there are a few contributing factors, including 1) illiquidity of shares, as there are only 5.75 shares trading in the float currently out of the 37 million in the total share count; 2) expensive 'borrow' and limited on stock (2.6m short shares, 47 percent of float, and borrow rates north of 150 percent), making it extremely difficult for investors to express a view on valuation by shorting the stock and 3) brand-related euphoria, driven by high profile locations and media attention surrounding the IPO process." Morgan Stanley says when the IPO lockup period ends later this month and more shares come to the market, the stock could trade lower. On May 12, CNBC Pro pointed out that Shake Shack's chart looked eerily like another hot IPO approaching a lockup period: GoPro . Source: Bespoke Investment Group The chart, courtesy of Bespoke Investment Group , pointed out that like Shake Shack, GoPro shares quadrupled from their IPO price 70 days after they began trading and then turned lower. After Bespoke sent that report, SHAK peaked 10 days later. —With reporting by CNBC's Michael Bloom