Same-Store Sales Slam Shake Shack Inc (SHAK), Option Bulls

Shake Shack Inc (SHAK) is sliding after its earnings report, due to lackluster same-store sales

Alex Eppstein
Aug 11, 2016 at 10:29 AM
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As the stock market reacts strongly to retail earnings, Shake Shack Inc's (NYSE:SHAK) quarterly report may be giving shareholders indigestion. Despite topping earnings estimates, the burger joint's same-store sales fell short of expectations, knocking the stock 7% lower to $37.99. And it's not just SHAK shareholders who are hurting -- the reaction among options traders probably isn't much better.

During the last four weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.46 calls for every put. In other words, bullish bets have outstripped bearish ones by a roughly 3-to-2 margin. But with today's steep losses, SHAK traders are switching sides,with puts outpacing calls, roughly 6,500 contracts to 3,700. In fact, puts are trading at 21 times the expected intraday rate and running in the 100th annual percentile, with buy-to-open activity detected at the weekly 8/12 40 strike.

Outside of options land, pessimism toward SHAK has prevailed. About 43% of the stock's float is sold short -- or 8.4 times its usual daily trading level. This opens up the possibility that some of the aforementioned call buyers were actually short sellers seeking upside protection.

On top of that, 70% of analysts rated SHAK a "hold" or worse heading in to today. Following earnings, though, SunTrust Robinson boosted its opinion to "buy" and raised its price-target to $48, while J.P. Morgan Securities upped its target price to $38. On the flip side, Jefferies trimmed its price target to $36 from $38.

Looking back, it's been an absolutely brutal year for SHAK. The stock has lost roughly half of its value since last August, and it appears the shares' recent run higher since their January low at $30 -- fueled by buyout speculation -- has run out of steam.

Of course, Shake Shack Inc's (NYSE:SHAK) technical struggles are simply a microcosm of the struggling restaurant sector. Among the 18 restaurant stocks we follow, the average year-over-year loss is nearly 4%, and just 56% are above their respective 80-day moving averages -- one of the lowest proportions seen on our internal sector scorecard.

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