Trade Update – $SHAK: Kazaam!

by Dan April 29, 2015 10:10 am • Commentary

On February 23rd I laid out a bullish cash for shares of Shake Shack (SHAK), totally disregarding valuation and bought the stock just below $43 on some (frankly) pie in the sky stuff, watch here:

As for the pie in the sky stuff, from MorningWord 2/23/15: Love $SHAK, That’s Where It’s At:

I would also add that while Wendy’s (WEN) is trading at 8 year highs, sales have declined every year since 2012, with its sharpest expected year over year decline of 23% since 2011.  It is not a mystery to me why a company like SHAK can have a $1.5 billion market cap with $162 million of expected sales while WEN (which has a similar product to it’s 2 behemoth competitors) has $4 billion market cap on an expected $1.85 billion in sales.

This fast casual assault on the fast food chains isn’t going anywhere and will only grow. If I were MCD’s new CEO I would make a knock-out bid for SHAK, put Danny Meyer on my Board of Directors and transform the fast food burger business before Meyer and other upstarts completely eat their lunch in the years to come.  Chipolte is already taking billions of burger, chicken and pizza dollars from dozens of competitors over the last 10 ten years by offering a cleaner, higher quality, environmentally friendly and healthier (perceived) product.  CMG had about $600 million in sales ten years ago, and is expected to do close to $5 billion this year. And SHAK isn’t even the only burger threat for MCD. There is Five Guys, In-N-Out, SmashBurger, you name it, all fragmenting the long time burger winners in different geographic markets. Something needs to be done and quickly to stem the sea-change that is occurring.  MCD should pull an Apple and do a massive Acqui-hire of the SHAK team. At first it will seem ridiculous. But a few years out it will be judged as sheer genius.

SHAK is  a long term buy and hold in my opinion on any meaningful pullback and I will look to start a position (despite valuation concerns).

I decided to close my eyes and buy. Two weeks ago when the stock was just below $60 I highlighted some of the similarities from a trading perspective between SHAK and GoPro (GPRO) after their IPOs from a sentiment, short interest, float and general scarcity value. ( MorningWord 4/15/15: Get Shorty. )

Now with the stock at $70 I am going to sell my shares. I may look to add back on a pull back. My pie in the sky thesis may never play out, but the idea got me looking at the stock, and 60% gain in 2 months beats a sharp stick in the eye. I don’t want to be a pig:

Action: SHAK Sold to Close at $70 for a $27.40 gain