Shares of burger chain Shake Shack Inc. (SHAK, Financial) rallied Thursday on the back of its first earnings report as a publicly traded company, but not until it scared the pants off investors with an initially weak reaction. While Shake Shack is still decidedly young as a publicly traded company, active investors and traders now have a well-defined area of support to lean against on the long side after Thursday’s wild post-earnings reaction, and should consider a trade in SHAK stock.
Shake Shack’s Q4 earnings came out to, well, not earnings. SHAK posted a loss of 5 cents per share, which was worse than analyst expectations for 3 cents. However, had it not been for IPO expenses, the loss would’ve only been a penny per share. Also, revenues did end up beating the Street, with its $34.8 million up more than 50% on a year-over-year basis.
Since its IPO on Jan. 30, SHAK stock has largely traded in a range with no real conviction in either direction, maybe because investors were waiting around for Wednesday’s earnings report for more clarity.
Looking at the daily chart, we see that after Shake Shack initially sagged at Thursday’s open, a nearly 18% intraday rally resulted in the stock forming a so-called outside day or bullish engulfing candle, which fully engulfed the previous day’s trading range. The rally also was the second-largest volume day since the IPO date, and a new high daily close that pushed SHAK past the horizontal resistance line (thick red).
Looking at the closer-up multiday 15-minute chart, we see that Thursday’s rally in SHAK only took about 30 minutes to begin to materialize as buyers quickly gobbled up the stock and closed the nearly 10% down-gap.
In other words, Thursday’s intraday rally has many qualities of a meaningful bullish reversal day that could see follow-through buying, and thus a pickup in upside momentum in coming days/weeks.
Active investors and traders could consider buying the stock above $47 for a move into $52.50 while any meaningful reversal of Thursday’s rally would negate the setup in the near term.
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