Shares of Sweetgreen(NYSE: SG) have skyrocketed in 2024. The stock has gained 223% year-to-date, erasing the price drop that followed the inflation crisis in 2022.
This hefty price jump raises a few natural questions for potential Sweetgreen investors. Is it too late to buy stock in the salad-based fast-casual restaurant chain, or can the surge continue from here?
Let's see what's going on.
Sweetgreen's earlier struggles
Sweetgreen's recent price surge wasn't exactly a triumphant victory march. Instead, it was more like a return to full health after a stay at Wall Street's stock hospital. Strangely enough, soaring sky-high is easier if you launch from an underground platform. That's what Sweetgreen is doing in 2024.
The company and stock could hardly catch a break in 2022 and 2023. Earnings and revenues consistently fell short of analyst expectations in that period. The biggest problem with that trend is that the analyst expectations were based on Sweetgreen's official guidance targets. It's one thing to miss arbitrary targets, and another to post results below management's operating plans.
The bottom-line results have stayed low in 2024 but investors were impressed by a return to healthier revenue growth this year. The stock soared 28% on March 1, powered by a mixed earnings report with decent guidance for the next fiscal year. The stock was priced for absolute disaster at the time, trading at just 2.4 times sales on the eve of that fourth-quarter report. That's a meager valuation for a high-octane growth stock -- Sweetgreen's top-line sales rose 24% year-over-year in the previous report, and that torrential growth rate was a slowdown from earlier peaks.
What's going on behind the curtain?
So Sweetgreen's recent price surge isn't necessarily a sign of stellar business success. On the upside, that leaves room for further gains.
The company is doing what it can to unlock those potential gains. The Infinite Kitchens salad-making system can automate the cooking process and lower Sweetgreen's staffing costs. CFO Mitch Reback aims to install these automated setups in about half of its new stores. Older locations may not have the right facilities or enough room for it. That tech upgrade should boost Sweetgreen's profit margins in the long run, and the company is already getting close to the breakeven point for bottom-line earnings.
It is also rolling out new menu items for the first time in years. After a successful test run in three Californian test kitchens, the entire store network now offers caramelized garlic steak in addition to the classic salmon and chicken protein options.
Sweetgreen can cook up further gains
Sweetgreen isn't sitting on its hands. It's a fast-growing restaurant chain with a health-conscious menu. And even after tripling the stock price in 2024, shares are still trading at a fairly modest 66.5 times sales. The stock isn't on fire sale, but it's cheaper than fellow high-growth restaurant stocks WingStop or Cava.
The stock could be a good fit for growth-oriented investors with an eye for the restaurant sector's prevailing winds. Salads and low-sugar foods are all the rage these days, and Sweetgreen is a trendsetter in that space.
So I don't think it's too late to get into Sweetgreen's soaring stock. You missed the absolute best time to jump aboard, but market timing is always a gamble anyway.
If you're worried about price drops related to future earnings reports, you could always keep that investment small or even set up an automated dollar-cost averaging plan to smooth out the effects of buying into a volatile stock. Sweetgreen can profit from automating its kitchens, and you can do the same with your stock-buying process.
Should you invest $1,000 in Sweetgreen right now?
Before you buy stock in Sweetgreen, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Sweetgreen wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $740,704!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 23, 2024
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wingstop. The Motley Fool recommends Cava Group and Sweetgreen. The Motley Fool has a disclosure policy.
