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These Analysts Think Shake Shack Inc.'s (NYSE:SHAK) Earnings Are Under Threat

The analysts covering Shake Shack Inc. (NYSE:SHAK) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following this downgrade, Shake Shack's 16 analysts are forecasting 2020 revenues to be US$597m, approximately in line with the last 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$0.18 per share in 2020. Previously, the analysts had been modelling revenues of US$674m and earnings per share (EPS) of US$0.30 in 2020. There looks to have been a major change in sentiment regarding Shake Shack's prospects, with a substantial drop in revenues and the analysts now forecasting a loss instead of a profit.

See our latest analysis for Shake Shack

NYSE:SHAK Past and Future Earnings April 5th 2020
NYSE:SHAK Past and Future Earnings April 5th 2020

The consensus price target fell 19% to US$45.57, implicitly signalling that lower earnings per share are a leading indicator for Shake Shack's valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Shake Shack at US$70.00 per share, while the most bearish prices it at US$30.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Shake Shack's revenue growth is expected to slow, with forecast 0.5% increase next year well below the historical 29% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 7.0% next year. Factoring in the forecast slowdown in growth, it seems obvious that Shake Shack is also expected to grow slower than other industry participants.

The Bottom Line

The biggest low-light for us was that the forecasts for Shake Shack dropped from profits to a loss this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Shake Shack's revenues are expected to grow slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Shake Shack.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Shake Shack analysts - going out to 2024, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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