Shake Shack stock rises while activist investor seeks out three board seats

The Yahoo Finance Live team break down the rise in Shake Shack's stock after activist investor seeking out three board seats, Shake Shacks year to date performance, and activist investor activity.

Video transcript

- Another food giant caught in the middle of a proxy battle. Shares of Shake Shack on the rise after activist investor Engage Capital, which has a 6.6% stake in the burger chain, is seeking three seats at the board, claiming that it has ways to double Shake Shack's profitability in the next two years. Now, in response to the activist investor, Shake Shack told Yahoo Finance, in part, "we are executing our strategic plan and making substantial operational and financial progress. We are guiding full-year 2023 to be a record year with expectations to return restaurant-level margins to 19% to 20%."

Now, this is one of the many activist investor situations we've heard of lately. Goldman Sachs recently came out with this report. They identified four financial variables representing potential sources of vulnerability that will cause activist investors to step in. They include slower trailing sales growth, lower valuations, weaker trailing net margin, and trailing two-year underperformance. Now, Shake Shack, it's important to note here, has had a great year. Their year-to-date performance is up more than 50%. [INAUDIBLE] you were to mention that. And it's really interesting to see over the past two years, though, shares are down 15%. So lots of pressure from lots of different areas here.

- Yeah, but to your point about the Wall Street versus Main Street story with the Shake Shack, I mean, listen, we just had Shake Shack last week here in the office. So it certainly--

- What do they have to be worried about?

- The whole corporate newsroom enjoying Shake Shack.

- But we're not the only ones. They're worried about volume in urban cities falling. We don't have employees here Monday through Friday like we did pre-pandemic.

- Yeah. But I also think, look, this points to a larger trend that's going on on Wall Street right now when we take a look at the activist investor activity and what exactly that has looked like. Because when you take a look at 2022 numbers, Bloomberg has been compiling data for years now. It was a record-setting year when it comes to some of that activity that we're seeing from activist investors here, over 632 activist campaigns we were looking at in 2022. This year so far, Q1, 69 new campaigns here, Josh, the second-highest quarter on record since 2019. So these activist investors, they're pushing change. We know a number of these companies have underperformed, and this is what they're doing.

- Well, it's the overall underperformance. And it gets to what we were talking about earlier with companies getting bought. You're going to see these valuations and companies go down, and people start to question the numbers. And things were frothy, say, a year and a half ago, and now things go down. And so you get into either acquisition with what we were just talking about with PointsBet in the sports gambling space, maybe activist investors. But it's certainly an overall macro story we're talking about. And we're talking about Shake Shack right now, but it's been interesting to see too, Seana, when you were pointing to those larger numbers-- I mean, activist stakes at Disney-- you're talking about big, big companies where people have been taking activist stakes too. We're not necessarily talking about smaller companies.

- Yeah. And really quick, today, you saw Elliott Investment calling for a boardroom shakeup over at NRG Energy. I don't know if that's what you were going to bring into the conversation.

- I was going to say that not always does it end up in the opposite party's battle. We saw this with McDonald's last year. McDonald's actually ended up winning the proxy fight. And so it's just interesting to see the way it will play out.