SHACK: A Technical and Fundamental Approach to Shake Shack
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I would also appreciate it if you could leave a comment below with some original insight.
In this analysis, I will be explaining my on views on the high-end burger brand, Shake Shack (SHAK).
I'll be exploring the technicals and financials of the stock, as well as the overall business model of the company.
Technicals
- Shake Shack's price history demonstrates a phase of immense bullish momentum
- It formed a textbook cup and handle pattern, in which the breakout led to the formation of all time highs
- However, after topping out, in November 2019, Shake Shack announced that it would temporarily shutter locations for upgrades in 2020
- This led to a significant drop with the addition of the Corona virus (COVID-19) pandemic, too severe to the point where the 5 year trend line support was tested.
- As it was technically oversold, stock prices bounced off support, forming a reverse head and shoulders pattern
- Based on the current technical setup, we could see the stock rally towards its previous all time high levels, completing the reversal pattern
Financials
- Shake Shack is one of the businesses that has been hit hard by the Corona virus (COVID-19) pandemic
- Due to lockdowns initiated by the government, their earnings for the second quarter of 2020 were at a net loss
- In terms of financials, the major issue is that they are short in cash
- With 112m in cash, they are spending 1.5m every week to cover fixed costs such as rent
- They have also laid off hundreds of employees and sold their stocks to secure more cash
- Due to their being a 2 Billion Dollar company, Shake Shack did not quality for the government's payroll program, and thus could not receive 10m in aid
- Currently, only over half of Shake Shack's licensed global units remain open, limiting Shake Shack's cash flow
- However, it's also important to note that they have shown a 25% growth in revenue year over year for the past five years.
Business Model
- Nevertheless, Shake Shack's Business model cannot be undermined.
- They have positioned themselves as a high-end burger place, unlike other fast food restaurants such as Mc Donald's (MCD)
- This is a strength for Shake Shack during the Corona Virus Pandemic, as people seek to purchase luxurious goods during hard times.
- As people can't eat out as frequently as they used to, when they do decide to eat out, they get an expensive meal.
- Just as luxurious goods are high in demand during recessions, Shake Shack's quality burgers will continue to be in demand during the pandemic.
- It's just the severity of the situation, and lockdowns initiated by the government, that prevent people from visiting Shake Shack stores as frequently as they used to.
- Shake Shack's management model is highly effective and efficient, providing the customer not only a pleasant experience, but also consistently delicious burgers through their meticulous quality control.
- This allows Shake Shack to scale tremendously over time, just as Mc Donald's has managed to do.
- They have great brand loyalty with a huge customer return rate, and the engaging ambiance they provide at their restaurants is what sets them apart from their competitors.
Conclusion
Shake Shack is a extremely solid company, struggling during hard times. However, it's important to note that SHACK is an overlooked growth stock, with immense potential for scalability. Given that the virus ends some time within 2021, we could expect a fast recovery, and huge continued growth from this company, as its fundamental business model continues to remain solid.
I would also appreciate it if you could leave a comment below with some original insight.
In this analysis, I will be explaining my on views on the high-end burger brand, Shake Shack (SHAK).
I'll be exploring the technicals and financials of the stock, as well as the overall business model of the company.
Technicals
- Shake Shack's price history demonstrates a phase of immense bullish momentum
- It formed a textbook cup and handle pattern, in which the breakout led to the formation of all time highs
- However, after topping out, in November 2019, Shake Shack announced that it would temporarily shutter locations for upgrades in 2020
- This led to a significant drop with the addition of the Corona virus (COVID-19) pandemic, too severe to the point where the 5 year trend line support was tested.
- As it was technically oversold, stock prices bounced off support, forming a reverse head and shoulders pattern
- Based on the current technical setup, we could see the stock rally towards its previous all time high levels, completing the reversal pattern
Financials
- Shake Shack is one of the businesses that has been hit hard by the Corona virus (COVID-19) pandemic
- Due to lockdowns initiated by the government, their earnings for the second quarter of 2020 were at a net loss
- In terms of financials, the major issue is that they are short in cash
- With 112m in cash, they are spending 1.5m every week to cover fixed costs such as rent
- They have also laid off hundreds of employees and sold their stocks to secure more cash
- Due to their being a 2 Billion Dollar company, Shake Shack did not quality for the government's payroll program, and thus could not receive 10m in aid
- Currently, only over half of Shake Shack's licensed global units remain open, limiting Shake Shack's cash flow
- However, it's also important to note that they have shown a 25% growth in revenue year over year for the past five years.
Business Model
- Nevertheless, Shake Shack's Business model cannot be undermined.
- They have positioned themselves as a high-end burger place, unlike other fast food restaurants such as Mc Donald's (MCD)
- This is a strength for Shake Shack during the Corona Virus Pandemic, as people seek to purchase luxurious goods during hard times.
- As people can't eat out as frequently as they used to, when they do decide to eat out, they get an expensive meal.
- Just as luxurious goods are high in demand during recessions, Shake Shack's quality burgers will continue to be in demand during the pandemic.
- It's just the severity of the situation, and lockdowns initiated by the government, that prevent people from visiting Shake Shack stores as frequently as they used to.
- Shake Shack's management model is highly effective and efficient, providing the customer not only a pleasant experience, but also consistently delicious burgers through their meticulous quality control.
- This allows Shake Shack to scale tremendously over time, just as Mc Donald's has managed to do.
- They have great brand loyalty with a huge customer return rate, and the engaging ambiance they provide at their restaurants is what sets them apart from their competitors.
Conclusion
Shake Shack is a extremely solid company, struggling during hard times. However, it's important to note that SHACK is an overlooked growth stock, with immense potential for scalability. Given that the virus ends some time within 2021, we could expect a fast recovery, and huge continued growth from this company, as its fundamental business model continues to remain solid.
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