SunTrust reiterated its buy rating on Shake Shack despite existing and planned store overlap that will eat into same-store sales.
The burger chain opened nine stores within 15 miles of comparable locations in 2016 and plans to open another 25 in 2017 just as close, according to analysts. But with the increasing concentration of stores, SunTrust says multiple expansion is critical to its positive rating.
"Our analysis supports management's assertion that sales cannibalization from new units is pressuring same-store sales," wrote SunTrust analyst Jake Bartlett in Monday's note to clients. "When Shake Shack's same-store sales were +13.3 percent, only 2 new units were opened within 15 miles of comp base stores."
Shake Shack shares fell about 6 percent earlier this month after the company disappointed investors with its second-quarter earnings report. Since touching a high in June, the stock has fallen 20 percent.