Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Shake Shack Inc. (NYSE:SHAK) shareholders have had that experience, with the share price dropping 21% in three years, versus a market return of about 19%. In the last ninety days we've seen the share price slide 28%. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Shake Shack

We don't think that Shake Shack's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

In the last three years, Shake Shack saw its revenue grow by 24% per year, compound. That's well above most other pre-profit companies. While its revenue increased, the share price dropped at a rate of 6% per year. That seems like an unlucky result for holders. It's possible that the prior share price assumed unrealistically high future growth. Still, with high hopes now tempered, now might prove to be an opportunity to buy.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on Shake Shack

A Different Perspective

It's good to see that Shake Shack has rewarded shareholders with a total shareholder return of 19% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 2% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Shake Shack better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Shake Shack you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.