Shake Shack's shares fell as much as 11 percent in early trading on Tuesday, a day after the hamburger chain reported the slowest sales growth at established restaurants in a year.
However, analysts said the selloff was mostly due to the stock's high valuation and because the New York-based company did not raise its 2016 forecast.
Shares of the company, known for its decadent milkshakes and crinkle-cut fries, have more than doubled in value since their debut in January 2015 in a blockbuster initial public offering.
Shake Shack trades at 104.5 times forward earnings, far higher than the industry median of 62.3.
The premium burger chain is likely to exceed its "prudent" forecast for slower growth in openings of company-operated restaurants in the United States as well as same-restaurant sales, Barclays analyst Jeffrey Bernstein wrote in a note.
"We therefore believe SHAK's greatest challenge remains tempering investor expectations ... while valuations have eased from peaks, they remain industry leading," he added.
The same-restaurant sales forecast includes minimal benefit from higher average spending and customer visits, despite strong traffic growth and the potential benefit from sales of Chick'n Shack sandwiches, William Blair analysts wrote in a note.
Shake Shack introduced chicken sandwiches made of natural and antibiotic-free chicken breasts, lettuce, pickles and buttermilk herb mayo in mid-January.
The sandwiches, which sell for $6.29 compared with $5.29 for the ShackBurger, have been a hit.
Shake Shack maintained its 2016 forecast of revenue of between $237 million and $242 million and same-restaurant sales growth of 2.5 to 3 percent.
Shake Shack's shares were down 10.4 percent at $37.83 in mid-morning trading.
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Anupama Dwivedi)