This year is the best of times and worst of times for two stocks that took their lumps in 2022.
Shake Shack
(ticker: SHAK), an upscale burger chain, saw shares dive 42% last year, as higher costs, slowed openings, and inflation took their toll. Shares of
23andMe Holdings
(ME), a consumer genetics and research company, crumbled 68% in 2022, a year that saw its chief financial officer exit.
Shake Shack has stopped underperforming, however. So far in 2023, shares have rocketed 78%, more than wiping out last year’s loss. On Wednesday, shares reached $76.14, an intraday level that it last traded at in February 2022.
The surge is largely due to the emergence of an activist investor, Engaged Capital, that said in May it planned a proxy fight for three director seats. ”In order for the company to reach its full growth potential and profitably scale this brand across the U.S. and the world, we believe significant adjustments to the company’s real estate strategy, store design, labor planning and supply chain framework will be required,” Engaged wrote in a letter to Shake Shack’s board.
Shake Shack was able to bring Engaged to the table, however. The two sides reached an agreement later in May to seat two directors amenable to both parties.
There’s one permanent player missing from 23andMe’s executive bench with the August 2022 departure of former chief financial officer Steve Schoch, who left to join transportation startup FLYR Labs. Joe Selsavage serves as interim chief financial officer of 23andMe.
Shares of 23andMe haven’t fared well in 2023, dropping 24% so far this year. In Thursday trading, the stock dipped to $1.57—a record intraday low since 23andMe went public in June 2021 by merging with a special-purpose acquisition company. At that price, the cheapest 23andMe test for “Ancestry Service” at $99 would cost about 63 23andMe shares.
23andMe’s site says the company has sold 12 million DNA kits since 2006. Assuming those DNA kits were priced at $99 each, that comes to about $1.2 billion—a sum more than $400 million greater than 23andMe’s current market value of $770 million.
Why own 23andMe stock now? Credit Suisse analyst Tiago Fauth wrote in a May 25 report, “Looking ahead, the key upcoming catalyst remains the potential announcement of new collaboration(s), as the
GSK
(GSK) exclusivity period is set to end in July 2023.”
GSK and 23andMe agreed in July 2018 to “an exclusive four-year collaboration that will focus on research and development of innovative new medicines and potential cures, using human genetics as the basis for discovery.” GSK invested $300 million in 23andMe at the time, and agreed to pay $25 million a year over the four years of the pact. GSK extended the pact in 2022 for a fifth year for a $50 million payment.
Fauth rates 23andMe stock at Outperform with a $6 target price, but that number has come down over the years. In August 2021, the analyst initiated coverage of the shares at Outperform with a $21 target price.
Write to Ed Lin at [email protected]
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