TD Cowen’s comments could push the stock further

With so much talk about technology stocks lately, it can be refreshing to hear about a stock from a completely different sector. Shake Shack Inc. NYSE:SHAKwhose shares have been rising since the summer of 2022, was spotted yesterday by the TD Cowen team.

It’s an interesting title to consider. Shake Shack has yet to complete the feat Nvidia Corporation NASDAQ:NVDA OR Microsoft Inc. NASDAQ:MSFT sharing maximums set in 2021.

Even with a 170% rally under its belt since bottoming nearly two years ago, the stock, at its current price of $105, is still far from its high of $140. That’s not to say it isn’t worthy of our consideration. There’s a strong argument that Shake Shack has flown a bit under the radar because it hasn’t yet recovered its previous highs.

Increasingly bullish prospects

The TD Cowen team mentioned this yesterday when they raised the stock’s rating from “market perform” to “outperform.” Analyst Andrew Charles is looking for large upward revisions to the stock’s EBITDA due to improved margin expectations and better spending control. The prospects of a new CEO joining this year are also optimistic, as 20-year veteran Randy Garutti is set to retire.

TD Cowen’s $125 price target is a high and points to approximately 20% upside in the near term. This would leave Shake Shack stock trading right near its 2021 peak, meaning the stock would have rallied 225% from the low, not bad for a fast food outlet.

There are concerns about how one direction has been used so much in recent trading, as it has brought the stock’s relative strength index (RSI) to a boiling point. A reading above 70 indicates overbought conditions, and Shake Shack’s is currently right there, after being above 80 just last week.

It has to be said that being a little patient here with an entry could be beneficial, especially since the stock was starting to weaken this week prior to TD Cowen’s comments yesterday. As we’ve seen with many companies, which have enjoyed a couple of months of exceptional trading, some consolidation after a solid run isn’t a bad thing.

What the title should do

For Shake Shack, that would mean holding the line above $100 and trading flat or sideways for a while. This would strengthen the $100 mark as a serious support line that would be well defended during any future bouts of volatility. It also constitutes a solid base from which the stock can begin the next phase of the rally, the one which should take it to $125.

The worst thing that could happen right now is for Shake Shack to give back its recent gains and drop towards the $70-$80 range, where it spent the first half of February. However, if that were the case, the upside potential would simply have increased by a considerable amount and the entry opportunity would be almost too good to miss.

It’s an unlikely scenario, however, at least from this writer’s perspective, as Shake Shack simply has too many things going in its favor right now. Last month’s strong earnings report beat analysts’ expectations, with 20% year-over-year revenue growth, improving margins and bullish analyst commentary.

What’s wrong? Look for shares to hold the $100 line into next week, with fresh forward momentum likely setting the stage for a march towards TD Cowen’s $125 price target.

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