Sweetgreen Inc. (NYSE:SG) is an innovator in the food industry recognized for its ground-breaking application of automation within its business model. The company’s Q4 results exceeded expectations, showing significant growth from the previous year. This, along with ambitious expansion plans and optimistic financial forecasts, underlines Sweetgreen’s promising trajectory. However, after rising 42% in the past five days, the current stock valuation and analysts’ average price target suggest some caution.
Sweetgreen’s Evolution
Sweetgreen Inc., the Los Angeles-based food chain, has built a strong reputation for its innovative approach to serving healthy food at scale.
The strategic acquisition of Spyce, a robotics technology start-up, in August 2021 was a significant step in Sweetgreen’s push toward automation. Sweetgreen has already started retrofitting its existing locations with the new technology, opening its first automated location in Naperville, Illinois, in May 2023. The company is set on a transformative trajectory for all Sweetgreen stores to be automated within five years.
In addition to adopting automation, the company recently appointed Rossann Williams, a former Starbucks executive, as its new Chief Operating Officer, thus infusing more industry expertise into its operations.
Recent Financial Results
Sweetgreen delivered a robust fourth-quarter performance, with revenue and EPS exceeding expectations. The company posted a loss per share of $0.24 on revenue of $153 million. The results marked a significant improvement from the $0.44 loss per share reported in the same quarter of the previous year, driven by a 29% increase in revenue.
Additionally, the adjusted EBITDA loss significantly narrowed from $17.9 million to $1.8 million year-over-year, reducing the margin from -15% to -1%. Operationally, the company’s restaurant-level profit margins increased from 11% to 16% through strategic pricing, labor optimization, and supply chain enhancements.
Sweetgreen plans to add 23-27 net new restaurants in 2024, which management expects to provide added revenue streams. The contribution from new locations is reflected in the upbeat guidance for the first quarter’s revenue and adjusted EBITDA.
What is the Price Target for Sweetgreen?
SG stock trades at the top of the 52-week range of $6.10 to $18.48, with bullish technical indicators – above the 20-day moving average price of $12.13 and a 50-day moving average price of $11.47. The strong price momentum suggests the stock may continue to see positive price movement in the future. However, the stock trades at a Price-to-Sales multiple of 3.707x, which is above its 5-year median value of 3.05x, indicating that it may be fully valued at the current level.
Meanwhile, analyst Brian Bittner at Oppenheimer continues to endorse Sweetgreen, raising the price target from $15 to $17 and maintaining an Outperform rating. Bittner highlighted the company’s strategies to drive same-store sales, improved restaurant margins, and better economics in emerging markets.
Wall Street is cautiously optimistic about Sweetgreen stock based on four Buys, two Holds, and one Sell rating. The average price target of $16.57 represents a 9.26% downside from current levels.
Final Considerations
Sweetgreen’s forward-thinking strategies and bold move toward automation demonstrate its commitment to being at the forefront of industry innovation. The company’s financial performance in the fourth quarter significantly exceeded expectations, and the ambitious expansion plan for the coming year further validates its positive potential.
However, the stock could be considered fully valued at its current level as it trades at high multiples. Analyst sentiment remains cautiously optimistic, even as the average price target is below the current stock price. Therefore, while Sweetgreen exhibits attractive long-term prospects, investors should be prepared for potential near-term price volatility.
