The 3.9% return this week takes Shake Shack's (NYSE:SHAK) shareholders three-year gains to 205%

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But if you buy shares in a really great company, you can more than double your money. For instance the Shake Shack Inc. (NYSE:SHAK) share price is 205% higher than it was three years ago. How nice for those who held the stock! On top of that, the share price is up 42% in about a quarter.

Since the stock has added US$193m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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While Shake Shack made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. 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.

Shake Shack's revenue trended up 16% each year over three years. That's a very respectable growth rate. It's fair to say that the market has acknowledged the growth by pushing the share price up 45% per year. The business has made good progress on the top line, but the market is extrapolating the growth. Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.

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

Shake Shack is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

A Different Perspective

It's good to see that Shake Shack has rewarded shareholders with a total shareholder return of 44% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 21% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shake Shack , and understanding them should be part of your investment process.

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.