Why Shares of The Habit Restaurants, Inc. Dropped 10% Last Month

By Markets Fool.com

Image source: Habit Restaurants.

Continue Reading Below

What:Shares ofThe Habit Restaurants dipped 10% last month, according to data from S&P Global Market Intelligenceas the better-burger chain got hit by an underwhelming earnings report.

HABT data by YCharts

So what: The stock fell sharply following its fourth-quarter earnings report, shedding 12% in a single session, then gained it back before sliding for the duration of the month.

On the surface, Habit had a decent quarter, with a per-share profit of $0.05, a penny better than expectations, and revenue increased 25% to $60.6 million, matching estimates. However, the market was turned off by a weaker-than-expected outlook as the fast-casual chain sees 2016 revenue of $286 to $290 million, short of the consensus at $292.3 million.

Continue Reading Below

Now what:Habit's quarter was essentially in line with expectations as it posted its 12th year of rising comparable sales. However, with its P/E ratio close to 100, investors seem to be expecting more. For the current year, Habit is eyeing 25% top-line growth along with a 3% increase in comparable sales. A year ago, comps were in the double digits following a 2014 report byConsumer Reportsthat ranked Habit's burger as the best in the country, but 3% is probably a more reasonable expectation going forward.

After recovering, the stock fell in part because rivalShake Shackalso issued a disappointing outlook for 2016. As both stocks are highly valued and occupy the same space in the fast-food industry, they tend to trade in tandem.

Habit plans to open 30 to 32 company-owned restaurant this year, on top of the 142 it currently has. With a goal of 2,000 restaurants nationwide, Habit stock should eventually bounce back as long as the company can maintain its record of steady comparable-sales growth and move closer to that goal.

The article Why Shares of The Habit Restaurants, Inc. Dropped 10% Last Month originally appeared on Fool.com.

Jeremy Bowman owns shares of Habit Restaurants and Shake Shack. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.