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Here's Why You Should Hold on to Shake Shack (SHAK) Stock

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Shake Shack Inc. (SHAK - Free Report) continues to benefit from various digital initiatives and investments plans, and increased focus on digital delivery channels. Robust same-Shack sales bode well for the company. Consequently, its shares have gained 26.1%, compared with the industry’s growth of 24.7%. However, disruptions related to the COVID-19 pandemic remain a concern.

Growth Drivers

Shake Shack has been investing heavily in digital transformation and it is crucial to the company’s growth. During the second quarter of fiscal 2021, orders placed on the Shake Shack app, website and third-party delivery platforms accounted for 47% of total Shack sales. The company-owned app and web channels increased 16.7% compared with first-quarter 2021 to 2.8 million total new purchasers since mid-March of 2020.

The Zacks Rank #3 (Hold) company continues to impress investors with robust global Same-Shack sales growth. During the first and second quarter of 2021, Same-Shack sales rose 5.7% and 52.7% year over year, respectively, primarily driven by increased in-Shack dining in both urban and suburban Shacks, and a high level of digital sales retention. The company is benefiting from sales improvement across all regions. The uptrend continued in July with same-Shack sales improving 38% compared with the same period last year.

The company is gaining from the store opening program. During the second quarter of fiscal 2021, the company opened eight net new domestic company-operated Shacks and 10 new licensed Shacks. Despite COVID-19 continuing to impact the company’s recovery and development plans, it intends to open 35 to 38 new company-operated Shacks within fiscal 2021 in both urban and suburban markets.

The company’s average weekly sales continue to increase over time. During the second quarter of fiscal 2021, its average weekly sales improved to $72,000 from $64,000 in the last reported quarter. For July 2021, Shake Shack reported average weekly sales of $74,000.

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Concerns

The Retail - Restaurants industry is currently grappling with the coronavirus pandemic and Shake Shack is no exception. The Delta variant, which was first found in India, has been rapidly spreading to other parts of the world, increasing the risk of infections. The World Health Organization has warned that Delta will become the globally dominant variant of the coronavirus in the coming months. The Delta variant might hurt the company in the coming months.

Let’s take a look at earnings estimate revisions. In the past 30 days, loss estimates for 2021 have widened to 7 cents from a loss of 4 cents. In the same time frame, earnings estimates for 2022 have declined by 9 cents to 40 cents.

Key Picks

Some better-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , Jack in the Box Inc. (JACK - Free Report) and The Wendy's Company (WEN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Papa John's 2021 earnings are expected to increase 122.9%.

Jack in the Box has a three-five year earnings per share growth rate of 17%.

Wendy's has a trailing four-quarter earnings surprise of 24.8%, on average.

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