Shake Shack's earnings surge leaves us with only one option for the stock, JPMorgan says

Instagram / Shake Shack

• Shake Shack gained 18% Friday after reporting first-quarter earnings.
• JPMorgan says the stock is now overvalued, citing increased costs and lower margins in the future.
• The bank says the stock is an "underweight."
• Watch Shake Shack trade in real time here.

Shake Shack might be overpriced after Friday's rally.

Shares of the burger chain soared almost 20% after the company beat on first-quarter earnings and revenue, but those gains cannot be justified according to JPMorgan analyst John Ivankoe, who downgraded shares to "underweight" from "neutral."

"This is currently a valuation driven exercise and we do not have enough valuation support for a rating other than Underweight following the nearly 20% gain post earnings," Ivankoe wrote in a note sent out to clients on Monday.

The burger chain currently trades around $56 a share, compared to Ivankoe's new 12-month price target of $49. He notes that same-store sales fell 4.2% versus JPMorgan's estimate of down 4%.

Shake Shack reported first quarter earnings of $0.15 a share, beating the estimated $0.08 per share. Revenue of $99.1 million was up 29% year-on-year.

Looking to the future, Ivankoe worries costs will increase due to higher wages, third-party delivery commissions and maintenance for older units. At the same time, Ivankoe anticipates store margins to trend down.

"We believe G&A leverage will become a major theme in upcoming years," Ivankoe wrote. "We hope the company will begin to commit to annual basis point savings in G&A, especially as store margins trend down as US average unit volumes trend away from still extremely high levels."

Shake Shack is up more than 28% this year.

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