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Shake Shack shares to drop 18%: Analyst

ShackBurger and fries at the Shake Shack
Ricky Carioti | The Washington Post | Getty Images

Shares of Shake Shack are poised to drop because future growth opportunities don't justify its sky-high valuation, said Wedbush, which initiated coverage with an underperform rating.

"We believe management's targeted 450 domestic unit opportunity at $3M AUV, implying a $1.35 billion domestic sales opportunity, is conservative. Nevertheless, similar to recent quarters in which new unit volume and comp upside drove upped expectations, we expect continued valuation contraction even as estimates are revised higher," Wedbush analyst Nick Setyan wrote in a research note Wednesday.