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Shake Shack in front of the New York-New York hotel and casino in Las Vegas
Shake Shack in front of the New York-New York hotel and casino in Las Vegas
John Locher—AP

The sell-off at Shake Shack continues. Shares of the fast-growing burger chain took another hit on Tuesday after Morgan Stanley downgraded the stock.

Morgan Stanley's target price of $38 is notable because the shares have never traded that low in its brief publicly traded tenure. Shake Shack went public at $21, but popped to $47 at the open and has never fallen to $38 or below. The stock went on to more than double even after that pop, but it's been all downhill since Shake Shake stock nearly hit triple digits during its euphoric peak two months ago. The stock has gone on to shed 45% of its value as of Tuesday's intraday low.

The downgrade is also notable because Morgan Stanley was one of the investment banks that helped take the fast casual burger chain public. This didn't escape the eye of CNBC's brilliant worrywart Herb Greenberg.

To be fair, it's not as if Morgan Stanley was bullish before Tuesday's note. The downgrade takes the firm's rating from the neutral "equal weight" to the bearish "underweight." It can also be argued that Morgan Stanley co-managed the IPO that took Shake Shack public at $21. The fact that it went on to pop nearly fivefold after that is all on Mr. Market.

The one knock that's fair on Morgan Stanley is that it could have been bearish -- and not merely neutral -- much sooner. Morgan Stanley's pretty critical now. It's suggesting that there's an "extreme disconnect" between the stock's current valuation and where it stands in its growth cycle. It's an argument that many have made since the stock's initial pop, but now it's coming from a company that benefited financially from taking Shake Shack public.

The downgrade isn't the only thing stinging the stock this week. The chain also began offering a fried chicken sandwich at a couple of its stores on Tuesday. Introducing a new crunchy chicken sandwich -- antibiotic-free and topped with lettuce, pickles, and buttermilk mayo -- may not seem like the kind of development that would take a pin to this balloon. However, the initial excitement when Shake Shack had taken out a Chicken Shack trademark was that it would be rolling out a sister concept to take on Chick-fil-A. Now it seems as if it's really just a sandwich for its flagship store.

This doesn't mean that Shake Shack will make it all the way down to $38. Sentiment is pretty crummy, but the stock's thin float -- clocking in at just 5.9 million shares, according to S&P Capital IQ data -- only guarantees that volatility will be the norm. There were nearly 2.4 million shares sold short as of mid-June, and while that's a low number, it's actually a big chunk of the overall float. Those long the stock over the past two months have been bloodied rare, and the wild swings -- both up and down -- will continue to be on the menu.

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