Shake Shack is set to report earnings on Thursday after the bell, and one market strategist says investors would be prudent to hold off on buying the stock.
Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, told CNBC's "Trading Nation" on Wednesday what he's expecting.
· Shake Shack has been on a tear this year, rallying 44 percent and outperforming the broader market; much of that gain has come recently, with a 31 percent rise in the last three months. Now, several signs point to stalled growth. The stock has made a "double-top" formation, a technical development with bearish implications, around the $70 per share level.
· This development on the chart, combined with the company filing for a shelf registration in early June, paints a picture for a potential correction. A shelf registration is a procedure that could dilute the company's equity.
· Still, the company may beat expectations on profits on Thursday, because the restaurant business was strong for the month of June. Revenue is expected to increase by 20 percent, which is a healthy clip, but not enough for a stock trading at 99 times forward earnings.
· Additionally, the company's expansion in China could be seen as a bullish catalyst, but that's not going to come into effect until 2020, so revenue from China is a long way off. The stock could be one to buy on a correction, but not at current levels.
Wall Street analysts are forecasting earnings of 18 cents per share, according to FactSet estimates.
Bottom line: While Shake Shack shares have been on fire, some signs point to a decline ahead, according to Schlossberg.