Why Shake Shack, Amarin, and Valeant Pharmaceuticals Slumped Today

By Markets Fool.com


Image source: Shake Shack.

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The stock market climbed higher into record territory on Thursday, overcoming a minor decline on Wednesday on renewed strength in several key sectors of the economy. In particular, favorable earnings news from several key retailers reestablished confidence that the hard-hit sector might finally be primed for a turnaround. Moreover, a substantial advance in oil prices helped reenergize the energy sector. Yet even with those favorable tailwinds helping to support the broader market, several stocks lost ground on Thursday. Among the worst performers on the day were Shake Shack (NYSE: SHAK), Amarin (NASDAQ: AMRN), and Valeant Pharmaceuticals (NYSE: VRX).

Shake Shack leaves investors hungry

Shake Shack dropped 6% after the company released its second-quarter financial report. The burger chain posted a 37% rise in revenue, sending adjusted net income up by more than half. Yet a 4.5% rise in same-restaurant sales didn't seem to satisfy investors who've gotten used to more impressive comparables in the past, and even the rapid pace of the company's growth fell short of the lofty expectations that growth investors have for Shake Shack. A host of those following the stock suggested that the day's share-price decline was overblown and represented a buying opportunity, but given the stock's extremely high valuation by conventional measures, the pullback for Shake Shack seemed consistent with concerns about whether the burger chain can sustain impressive growth rates far enough into the future to justify the share price.

Amarin completes its share sale

Amarin dropped 8% in the wake of the pricing of its secondary offering of stock Thursday morning. The company announced that it had priced its sale of 21 million shares at $2.85 per share, fully 14% below where the stock closed Wednesday afternoon. Amarin has said that it intendeds to use the proceeds from the stock offering to provide funding for its REDUCE-IT cardiovascular outcomes trial as well as other corporate purposes, taking advantage of the big spike in its share price since late July. Even with the pullback, Amarin still trades well above the secondary offering price, suggesting continued confidence in its future prospects.

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Valeant Pharmaceuticals takes another hit

Finally, Valeant Pharmaceuticals closed down 10%. The beaten-down drug-maker suffered yet another setback after reports surfaced that the company might be the subject of a criminal investigation by federal regulators. Valeant has been the target of regulatory scrutiny for quite a while now, with Senate lawmakers convening committee discussions about its pricing practices and other aspects of its business model. Yet the report of possible criminal charges ups the ante for Valeant, and even those investors who've thus far been willing to stick it out through difficult times might be thinking twice about whether the potential reward of holding onto Valeant shares justifies the risks involved.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. 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.