Sweetgreen has had an impressive run over the past six months as its shares have beaten the S&P 500 by 7.3%. The stock now trades at $32.06, marking a 14.6% gain. This performance may have investors wondering how to approach the situation.
Following the strength, is SG a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does SG Stock Spark Debate?
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.
Two Positive Attributes:
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Sweetgreen has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 5.2%.
2. EPS Improving Significantly
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Although Sweetgreen’s full-year earnings are still negative, it reduced its losses and improved its EPS by 58.4% annually over the last three years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.
One Reason to be Careful:
Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the last two years, Sweetgreen’s capital-intensive business model and large investments in new physical locations have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 11%, meaning it lit $10.97 of cash on fire for every $100 in revenue.
Final Judgment
Sweetgreen’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 116.1× forward EV-to-EBITDA (or $32.06 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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