Next-gen restaurant chain Sweetgreen (NYSE:SG) has been a star performer, with its stock surging over 184% this year. This impressive growth is due to the enthusiasm for robotic kitchens and is expected to continue, especially after a recent beat on quarterly revenue. The company’s expansion of its technology has also contributed to the positive sentiment, leading to shares trading at a premium.
While this presents an intriguing opportunity in the restaurant industry, with long-term growth potential, investors should be prepared for a potentially volatile ride, with the possibility of a pullback from current levels at some point.
Sweetgreen Expands with Robotic Kitchens
Sweetgreen has been on a rapid growth trajectory, opening six restaurants in the most recent quarter, and plans to open between 23 and 27 new restaurants in 2024. The business, well-known for its innovative use of technology in the food industry, has been ramping up locations with its robotic bowl-assembly machines, and further expansion plans are underway. The company anticipates adding seven robotic “Infinite Kitchens,” an automated system that assembles salads and bowls in a faster and more accurate fashion, among the new restaurants, and modernizing three to four existing locations.
The need for this transformative approach is driven by the increasing labor costs facing restaurants. The company claims that the labor cost savings, coupled with improved efficiency and speed, offset the capital costs of this transition. The benefits of these automated outlets include faster service, consistent portions, and reduced employee turnover, making them an essential part of Sweetgreen’s forward-looking strategy.
Recent Financial Results & Sweetgreen’s Outlook
The company recently reported financial performance for the first quarter of Fiscal year 2024, marking an improvement compared to the same period in the previous Fiscal year. Revenue increased 26%, from $125.1 million to $157.9 million, surpassing expectations of $151.02 million.
Sweetgreen also reported a decrease in the loss from operations compared to the previous year, reducing from $35.3 million to $26.9 million, resulting in a net loss of $26.1 million for the quarter. Earnings per share of -$0.23 fell short of the consensus expectations of -$0.18.
Looking ahead to the rest of 2024, management has updated its financial guidance based on the strength seen in the first quarter. It projects revenue from $660 million to $675 million, a restaurant-level profit margin of 18.5%- 20%, and an adjusted EBITDA between $10 million and $19 million.
What Is the Price Target for SG Stock?
Analysts following the company have been mostly optimistic about the stock. For instance, RBC Capital analyst Logan Reich recently raised the price target on the shares from $35 to $45 while maintaining an Outperform rating, citing the growth and margin levels and higher confidence in Infinite Kitchen rollouts.
Sweetgreen is rated a Moderate Buy overall, based on the aggregate recommendations and price targets assigned by seven analysts over the past three months. The average price target for SG stock is $30.43, representing a potential -10.26% change from current levels.
The stock has been highly volatile, though its trends over the past few years have been steadily upward overall, climbing roughly 220% in the past 24 months. It sits at the higher end of its 52-week price range of $8.64 – $36.72 and demonstrates ongoing positive price momentum, trading above its 20-day (31.14) and 50-day (27.44) moving averages. The stock trades at a premium with a P/S ratio of 6.04x, well above the restaurant industry average of 2.9x.
Final Analysis on SG
Sweetgreen stock has seen remarkable growth this year. Its plans for further expansion reflect its current strength, and its recent revenue beat, coupled with forward guidance, suggests that more growth could be in the cards. The company presents an intriguing opportunity for long-term investment, though investors will be paying a premium and should be prepared for a potentially volatile ride.
