Shake Shack Surges on Earnings Beat: Are Shares a Buy?

Shares of Shake Shack (NYSE: SHAK) rose 5% in intraday trading on Thursday as the company's well-received third-quarter earnings report pushed shares higher. The company reported revenue of $367.4 million for the quarter, up 15.9% year over year. Net income was $12.5 million, while its restaurant-level profit margin ticked up to 22.8%.

Just as important as the improved numbers was the expectations game. Shake Shack's earnings growth beat analysts' estimates by 16.1%, while its revenues beat expectations by 1%.

Shake Shack also opened 13 company-owned stores, adding to the seven licensed locations opened in the quarter. The company forecasts opening 90 to 110 company-owned and licensed locations in fiscal 2026 as part of its push to nearly quintuple its store count to 1,500 locations in the years ahead.

So, from rising earnings and revenue to new store openings and growing margins, it was a triumphant earnings report. But there are two big reasons investors should hold off on buying shares for now.

Macroeconomic winds are pinching the fast-casual sector

This earnings season, the CEOs of Domino's Pizza, Starbucks, Chipotle, and a handful of other fast-casual dining companies have lamented challenging macroeconomic environments and pinched consumer spending as headwinds for their companies. According to the Center for Economic Policy Research, Americans' spending on fast food plateaued in 2024 and continued to stand still into 2025, despite growing at an average clip of 5.4% in 2021 through 2023. In fact, spending in August was less than 0.1% higher than it had been in December 2023.

Image source: Getty Images.

How much worse can it get? Shake Shack is forecasting beef inflation in the mid-teens for the second half of 2025, and beef is the biggest part of its commodity basket. It also expects beef inflation to continue into 2026. And with droughts worldwide leading to historically low cattle supply, analysts say the problem could persist into 2030.

"We have pricing power," Rob Lynch, Shake Shack's CEO, said in Wednesday's earnings conference. For the last 19 quarters now, that's been true. Shake Shack has now grown same-store sales for every quarter since Q4 2020, despite having raised prices repeatedly during that time frame. But at some point, the triple whammy of rising inflation caused by tariffs, inflation caused by lower interest rates, and ongoing beef inflation triggered by drought may catch up to this company, especially if the economy continues to slow down, as many analysts are forecasting.

Here's a fun fact: Since Shake Shack went public in January 2015, America's unemployment rate has never been below 5.7%, except for the anomalous 18-month period during COVID-19 lockdowns, when many millions of people received thousands of dollars in stimulus checks. Unemployment has been on an uptick in recent months and now stands at 4.3%. We don't know how many jobs were added last month because of the government shutdown, but the last report from the Bureau of Labor Statistics showed just 22,000 jobs created for all of August. If unemployment surges over the next few months (or if it's surging now and economists are unaware due to the lack of data), then Shake Shack could be tested in a way it never has been as a public company.

Even a terrific company can be overvalued

After its post-earnings rally, Shake Shack's price-to-earnings ratio stands at 94. That's triple the S&P 500 average of 31 and suggests that shares are approaching nosebleed valuation levels.

What about by other metrics? Shake Shack's price-to-earnings-to-growth (PEG) ratio can offer a sense of how shares are valued relative to the rate of earnings growth. Shake Shack has a PEG ratio of 2.21, which also suggests overvaluation, as stocks with PEG ratios below one are generally thought of as being in value territory or close to it.

For context, the high-flying semiconductor company Nvidia (NASDAQ: NVDA) has a PEG ratio of exactly 1, with a price-to-earnings ratio of 57, barely half of Shake Shack's. One big difference in the two companies' valuations is that Nvidia is growing earnings far faster at 59.2% year over year, compared to 16.1% year-over-year growth for Shake Shack.

While Shake Shack is growing earnings, revenue, and margins at a respectable clip, its shares are priced as if it were growing them at a breakneck pace, which it isn't. When considering the macroeconomic headwinds that may get worse before they get better, it's clear that Shake Shack has more downside risk than upside potential in the short term. Its extravagant valuation tilts the odds against investors buying shares today.

William Dahl has positions in Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Domino's Pizza, Nvidia, and Starbucks. The Motley Fool recommends the following options: short December 2025 $45 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.