Shake Shack slides as Morgan Stanley cuts rating, citing 'extreme disconnect' in stock price

MarketsAssociated Press

Shares of Shake Shack have slumped this summer, and they dropped around 10 percent Tuesday after a Morgan Stanley analyst said the burger chain's stock is still too expensive.

John Glass has a price target of $38 on Shake Shack stock and said there is "an extreme disconnect" between the stock's price and what it's actually worth. The shares, which began trading in January, have never hit a price that low, and in May they approached $100 before sliding to a close of $59 on Monday. Glass said the New York company has surpassed its initial goals for restaurant openings and profit margins and its business should continue to do well, but he thinks the stock price will come down.

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Shake Shack Inc. stock lost $5.98, or 10.1 percent, to $53.02 in midday trading.

Shake Shack's IPO priced at $21 per share and the stock more than doubled in value on its first day of trading. Its all-time low of $38.63 came on Feb. 17, while it peaked at $96.75 on May 22.

Glass, who lowered his rating on the shares to "Underweight" from "Equal-weight," said the stock price has been boosted by media attention that followed the company's initial public offering in January, its concentration in high-profile markets, and by the limited number of shares currently trading. However more shares will start trading in a few weeks after a post-IPO "lock-up" period expires.

The analyst said Shake Shack has a strong pipeline of planned restaurant openings in new markets, with Los Angeles and Phoenix-area locations expected to open in 2016, and limited-time-only promotions should continue to boost its sales. The company announced several summer promotions on Tuesday, saying a chicken sandwich, peach lemonade and frozen custard are now on sale at some New York City locations.