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Why Shake Shack Stock Was Heating Up Today

What happened

Shares of Shake Shack (NYSE: SHAK) were gaining today in what appeared to be a delayed reaction to news that the fast-casual burger chain was expanding in China.

The restaurant stock closed 9.1% higher on Thursday.

Image source: Shake Shack.

So what

On Tuesday, Shake Shack said it was expanding its partnership with its Chinese licensee Maxim's Caterers by adding 10 Shacks in new territories in China by 2031. The company is now committed with Maxim's to have 79 restaurants operating in that country by 2031. Currently, it has 16 Shacks open in China, up from just seven at the beginning of the year.

Michael Kark, Shake Shack's chief global licensing officer, said: "We are humbled by the enthusiasm our fans have shown us in China and see this extension to Chengdu and beyond as a natural next step for Shake Shack. China is incredibly fast paced, dynamic and remains our fastest growing international market."

Now what

Shake Shack shares gained modestly on Tuesday and Wednesday on the news, and it was unclear why the stock shot higher today, since there were no other company-specific updates. What is clear is that Shake Shack has seen huge demand in Asia with long lines common at store openings, and China represents what could be its biggest market and one that has taken enthusiastically to American fast food.

Growing its China base to 79 locations over the next 10 years isn't enough alone to move the needle on the stock, but the key part is that the company is expanding to several new territories over that time, starting with Chengdu next year. That will allow it to more deeply penetrate the world's most populous nation, and if the openings are successful, investors should expect the expansion to grow well beyond 79 locations.

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Jeremy Bowman 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.


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