Why Shake Shack Inc. Stock Plummeted Today

Shake Shack will open its second Arizona location this week. Source: Shake Shack.

What:Shake ShackInc. shares were getting left on the back burner today, falling as much as 12.4% and closing down 11.8% after the release of its fourth-quarter earnings report.

So what:The high-end burger flipper actually beat expectations on the top and bottom lines as earnings of $0.08 a share topped estimates by a penny, while revenue jumped 46.8% to $51.1 million, ahead of the Street's view at $50.3 million. Comparable sales also increased 11%, capping off a year of sizzling sales growth.

However, the stocks priced for perfection demand perfection, and the market was turned off by underwhelming guidance for 2016. Shake Shack maintained its previous 2016 comparable sales forecast of 2.5% to 3%, a considerable slowdown from the 13.3% pace they grew at last year. The company also lifted its minimum wage at the beginning of the year by $1.00 to $1.50 and said that the move would cost it 100 to 150 basis points this year, or about $3 million.

Now what:When asked if the company's strong comparable sales growth had continued into the first quarter, CEO Randy Garutti played it coy, insisting that it was too early in the year to extrapolate any meaning from the first two months of results.

However, in its brief publicly traded history, the company has established a pattern of providing conservative guidance. After its first-quarter report last year, management projected comparable sales growth of low to mid-single digits, which it clearly smashed. While another year of 13% growth is unlikely, there's reason to believe it would beat the 2.5% to 3% range, especially with the addition of the ChickenShack sandwich to the menu earlier this year.

Shake Shack will open 14 new company-operated restaurants this year, growing the base by nearly a third, and will add eight international licensed Shacks. However, its full-year guidance only calls for revenue to grow 24% to 27%, a figure that assume especially muted sales at its new restaurants and weak growth at established ones. Lower beef prices should also counteract the effect of the wage increases, meaning earnings could grow faster than revenue. Wall Street seems to be making a mistake by projecting just 18% growth to a $0.39 profit per share this year.

Pressure on the stock will remain given its high valuation, but the fourth-quarter report showed nothing but positive catalysts. As the company expands, the stock will eventually overcome those valuation concerns.

The article Why Shake Shack Inc. Stock Plummeted Today originally appeared on Fool.com.

Jeremy Bowman owns shares of 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.

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