Shake Rattle and Roll. Here’s the trade on Shake Shack (SHAK) (May 07, 2015)
We’re looking at Shake Shack ( NYSE:SHAK ) here and this is why: this was a short squeeze. A lot of folks have been talking about it, I know Cramer has been talking about it on “Squawk on the Street” in the morning, I’ve seen guys on “Fast Money” talking about it, I’ve been talking about it I think here in my “Free Chart” videos, but definitely on our subscription site, that this is a short squeeze.
Nothing against Shake Shack ( NYSE:SHAK ), I’ve never eaten there, but I’m sure their shakes are really good, but this was a short squeeze. They have a P/E, now their revenue growth over the last over the last four quarters respectively was, 54 percent increase, 32 percent increase, 40 percent increase, 52 percent increase. So the revenue growth has been impressive, that’s what we like to see and the market will pay up for strong revenue growth, like to stupid ridiculous P/E’s, especially now because a lot of companies aren’t growing that fast.
In other words you’re going to get stocks of companies with strong revenue growth and then you look at the P/E and say, “For crying out loud this is just stupid,” but yet the stocks just keep going higher. You have to understand, though, when that’s happening, how much is short interest a key factor in that? I’m just looking now at Shake Shack ( NYSE:SHAK ), the shorts as a percentage of their float, 34 percent, and I’m pretty sure that used to be higher, so shorts are taking some of their stuff off.
My suggestion was, the other day, and I sent this out in a morning note, you need to be getting out of this one and also TASER ( NASDAQ:TASR ), or at least lightening up, a least putting your stops in place. Now, the P/E for Shake Shack ( NYSE:SHAK ) is 939, that’s only 55 times the average S&P stock, so obviously this stock is trading at a premium. Now, how many people, other than some chucklehead who’s running a money management company, who’s all upside down in Shake Shack ( NYSE:SHAK ), who many folks do you thing are going to say, “Wow! Shake Shack is really cheap at a P/E of 939?”
Even with revenue growth like this company has been reporting, that is a massively ugly P/E. This is what you’ve got to understand, I’m giving you pearls here, hopefully we’ll be giving you dollar bills, this company reports earnings on Wednesday the 13th; this is a stock that’s going completely on revenue growth, sales, and not just sales, “Oh, they have strong sales.” No, the market wants to see not just revenue growth; it wants to see accelerating revenue growth. Not just 52 percent, not just 40 percent, not 32 percent, it wants to see growth more than 52 percent, which again, the last quarter ended December 31st.
So if this company reports earnings growth that’s not absolutely “blow them out of the water” results you could see this stock fall further, and you can say, “Oh, well Dan how could it do that? This is a buying opportunity, its already fallen 15 percent.” Look, there’s no law against a stock falling back 55 percent you know down to $55.00, you just can’t tell, with a stock like this, how far down is too far down. So my suggestion to you is, stay out of this stock until after the company reports earnings. If you’re in it that’s fine too, just make sure you’re grabbing you’re seat belt, it’s a contact sport, I’ve said it before, I’ll say it again, wear a cup.
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