This burger play is breaking out on heavy volume. How to trade it using charts
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Despite society becoming significantly more health conscious in a post-pandemic environment with weight-loss drugs and form-fitting ‘athleisure’ companies all the rage, Americans have not lost their taste for a tasty burger. Let’s breakdown the potential breakout in Shake Shack (SHAK) . Shake Shack recently reported exceptional earnings and the stock has jumped on strong trading volume. Can it continue and should you consider this classic American vice in your portfolio? My answer is yes, and I added to my position on Monday. Before we get into ‘the meat’ of this analysis, a quick anecdote that I know will be met with fierce resistance from some. As a young twentysomething proprietary/professional trader in San Diego learning the markets I was forced to be frugal with my budget and wound up at In-N-Out burger more than a few times per week. I thought it was the best burger in the U.S. hands down. Fast forward two decades to just last week on a family ski trip to Breckenridge we stopped off at an In-N-Out in Denver to see what my wife and twin boys thought. It was received fairly well with a family consensus of about 7 out of 10. On the way back we stopped at Shake Shack in the Denver airport and the consensus was 8 out of 10. Are the tides turning? Expanding margins I included that anecdotal story because from what I can gather on the internet, In-N-Out (being a private company) and Shake Shack are roughly the same size and I’m wondering if SHAK is capturing market share. SHAK does about $1.24 billion in revenues in less than 600 locations and In-N-Out was reported to do $1.8 billion in revenues in about 400 locations in 2022. In-N-Out has remained primarily on the West Coast to keep operations geographically confined to ensure strong operations and quality, but there are now plans to expand to the East Coast. On Feb 15, SHAK reported earnings and revenue ahead of expectation. In the prior earnings letter to shareholders CEO Randy Garutti cited margin expansion multiple times and analysts agree with expectations of margins to expand beyond 12% in Q1 and 14% in Q2. This is interesting as one of the stronger components of the previous CPI report was the ‘ food away from home’ metric. Breaking down the chart Turning to the technicals, the breakout through the $80 resistance level on significant volume following those fourth-quarter earnings was very impressive. I hold the position in my growth portfolio at Inside Edge Capital, and in the research portfolio for my research business (TradingAnalysis.com) and just added to it Monday with stop losses at $87. There is a significant source of resistance from price projections congregating around $105-$117.50. If this zone holds resistance, which I suspect it will, any pullback that is less than the prior correction of 16% can be considered another spot to add or initiate a position with stop loss back below the $80.00 breakout level. DISCLOSURES: Gordon owns SHAK personally and in his wealth management business Inside Edge Capital. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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