SHAK

We rate Shake Shack Inc. (SHAK) as a Reduce with a composite score of 45.9/100 at a current price of $89.38. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (49th percentile) and stability (42th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (36th percentile) and investment (37th percentile) tempers our overall conviction. We assign a Narrow Moat rating (41/100), High uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Shake Shack Inc. holds a top-quartile position (#0 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.9/100 places it at rank #2652 in our full 7,333-stock universe. At $4.1B in market capitalization, Shake Shack Inc. is a mid-cap player in the Retail Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 16%, though momentum at the 36th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 48% (+11.7pp vs sector) narrow to operating margins of 2% (-2.3pp vs sector) and net margins of 1.7%, yielding a gross-to-net conversion rate of 4%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $89.38, Shake Shack Inc. is trading near fair value based on current fundamentals. Our value factor score of 41/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 147.1x (a 587% premium to the sector median of 21.4x), EV/EBITDA of 27.0x (at a premium), P/B of 7.4x, P/S of 2.8x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to Shake Shack Inc.. Key risk factors include elevated market sensitivity (beta of 1.61), elevated valuation multiple (P/E 147.1x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.61); elevated valuation multiple (P/E 147.1x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 42th percentile and quality factor at the 49th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 48% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Shake Shack Inc.'s capital allocation as Poor. Key concerns include weak asset returns (ROA 1.4%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Shake Shack Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Shake Shack Inc. receives a Reduce rating with a composite score of 45.9/100 (rank #2652 of 7,333). Our quantitative framework assigns a Narrow Moat (41/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 41/100.

Our analysis does not support a constructive view on Shake Shack Inc. at this time. The combination of the current quantitative profile, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.