Here's Why Shake Shack Stock Got Pummeled Today
Key Points
Shake Shack's sales grew by 14% in Q1, but profitability took a step back.
Management guided for sales growth of 14% in 2026, with margins to rebound.
Investors will want to watch Shake Shack's cash from operations closely going forward to ensure it can keep funding growth in-house.
- 10 stocks we like better than Shake Shack ›
Shares of quickly growing fast-casual dining chain Shake Shack (NYSE: SHAK) took a 29% haircut this morning after the stock reported first-quarter earnings. While Shake Shack delivered Q1 sales growth of 14%, this fell well short of Wall Street's expectations, as did its $0.00 in earnings per share, which was $0.12 below consensus. With these underwhelming figures, and the company's adjusted EBITDA margin declining from 12.7% last year to 10.1% in Q1 this year, the market sold off the stock. Looking ahead, management guided for sales to grow by 14% in 2026, adjusted EBITDA margins to rise back to 14.4%, and for the company to add 60 to 65 new locations -- a near 10% increase from today's total of 679.
My biggest concern in today's earnings report was Shake Shack's declining cash from operations (CFO). Over the last two years, the company's CFO exceeded capital expenditures (primarily for new locations), meaning it was funding its expansion in-house. However, in Q1, CFO was only $8.5 million, while capex was $47.2 million. While I don't want to overreact to these figures from 90 days' worth of data -- especially as the decline may stem from the company's Project Catalyst, which aims to modernize its locations -- it is something to monitor going forward. Shake Shack had finally reined in shareholder dilution thanks to its rising CFO and looked set to grow via its own cash generation, making the stock a promising investment proposition.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Image source: Getty Images.
That said, investors shouldn't panic just yet, as management expects margins to rebound throughout 2026 and has a long-term goal to more than double its current store count. Furthermore, the 17 locations Shake Shack opened in Q1 were the most in its history, so some of this margin weakness likely stems from the outsize costs associated with that faster growth. Trading at just 14 times CFO -- even after this quarter's CFO decline -- Shake Shack is a reasonably priced and intriguing growth stock, especially as it launches a loyalty program in 2026.
Should you buy stock in Shake Shack right now?
Before you buy stock in Shake Shack, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Shake Shack wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $476,034!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,274,109!*
Now, it’s worth noting Stock Advisor’s total average return is 974% — a market-crushing outperformance compared to 206% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of May 7, 2026.
Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Recommended Articles
