Shake Shack is back. The American fast casual food chain’s stock has been rallying since its May 4 first quarter earnings beat. But at nearly $60 a share, CNBC’s Jim Cramer said the stock isn’t worth the money.
“Unlike Shake Shack’s reasonably priced burgers, the stock is incredibly expensive again and I just can’t get behind anything where the risk-reward is so clearly not in your favor,” Cramer said on “Mad Money” Monday.
“You might want to ring the register here or at least take part of your position off the table,” he said.
Across the board, the restaurant industry benefited from President Donald Trump’s tax reform. Shake Shack’s stock jumped from around $30 a share to about $40 a share at the end of 2017. But it was after this year’s first earnings report that the stock really took off — jumping 18 percent in a single day.
Cramer warned investors that the surge might not be sustainable.
“The problem with Shake Shack, from the very beginning, ever since it came public in 2015, is that this stock has been incredibly expensive, right from the get-go,” Cramer said.
The stock was trading at just $21 at its IPO in 2015. By the end of the trading day, however, shares were trading at around $47. Within four months, the stock price peaked at $96, before coming back down.
“Shake Shack is not most restaurant chains,” Cramer said. “This thing had always been valued more … like a cloud king than a restaurant chain. Even after the monster sell-off in the second half of 2015, this stock has been prohibitively expensive.”
The Mad Money host pointed out that shares sold for 78 times earnings in 2016. In 2017, the stock was still valued at 62 times earnings.
And while the first quarter earnings beat caught everyone’s attention, some analyst downgraded the stock, including J.P. Morgan. The bank pointed out that the stock is overvalued with same-store traffic declining 4.2 percent.
Disclosure: Cramer’s charitable trust owns shares of J.P. Morgan.
Questions for Cramer?
Call Cramer: 1-800-743-CNBCWant to take a deep dive into Cramer’s world? Hit him up!
Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram – VineQuestions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com
