Key Points
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Investors rotated out of AI stocks and into overlooked sectors like restaurants in October.
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Several analysts raised their price targets on the stock.
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An offer to buy out Wendy’s lifted other restaurant stocks like Shake Shack.
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Shake Shack (NYSE:SHAK) stock was moving higher last month in a broader rotation into restaurant stocks as investors sold AI stocks and rotated into undervalued sectors like restaurants.
There was no major news item that drove the stock up last month, but Shake Shack did benefit from its announcement that it would expand into Brazil, and it received several positive analyst notes in the month. Additionally, Nelson Peltz’s buyout proposal for Wendy’s lifted other restaurant stocks, as it suggested the sector was undervalued and that additional private offers could emerge.
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According to data from S&P Global Market Intelligence, Shake Shack finished the month up 20%. As you can see from the chart below, the stock gained gradually for most of the first three weeks of the month, then jumped at the end of the month on news about Wendy’s.
SHAK data by YCharts
What happened with Shake Shack in October
Shake Shack started the month with momentum and continued to climb after announcing plans to enter Brazil through a licensing partnership with Bold Hospitality Company. The company noted its successful entry into Mexico seven years ago, and it’s also about to enter Panama as it expands further in Latin America.
Later in the month, Morgan Stanley raised its price target on Shake Shack from $74 to $79 with an equal weight rating, finding that overall demand was resilient in the fast food industry.
Finally, UBS lifted its price target on Shake Shack from $68 to $73 the following week.
Towards the end of the month, third-quarter reports from peers like Chipotle and Starbucks began to come in, pointing to a strong quarter for the industry.
The news about Wendy’s buyout offer also gave Shake Shack a boost, and Shake Shack, with a market cap of only $3 billion, could potentially be a buyout target as well.
Image source: Shake Shack.
What’s next for Shake Shack
Shake Shack will report third-quarter earnings after hours on Thursday, and analysts are expecting revenue to grow 16% to $426.3 million, but for adjusted earnings per share to fall from $0.36 to $0.34.
Shake Shack continues to expand across the country and is coming off a second quarter where it delivered 3.5% same-store sales growth.
Investors will want to keep an eye on same-store sales growth and margins when it reports earnings, as the company has struggled to convert revenue growth into profit growth. Still, if the performance of peers like Chipotle is reflective of the broader industry, Shake Shack could top expectations on Thursday.
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Jeremy Bowman has positions in Chipotle Mexican Grill and Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short December 2026 $38 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
