Investing in restaurant stocks can be tricky. This is particularly true when you’re dealing with a recent initial public offering (IPO), like the one that just transpired with Sweetgreen (NYSE:SG). So, does it make sense to fill up on SG stock now?
It’s an interesting niche-market proposition — no doubt about that. Founded in 2007 in Washington, D.C., Los Angeles-based Sweetgreen is a fast-casual, assembly-line-style restaurant chain that specializes in salads.
As we’ll see, SG stock has had the same pop-and-drop trajectory that we’ve seen with some other hype-fueled initial public offerings (IPOs). Now that the overeager traders have left the building, though, there may be a prime dip-buying opportunity here.
There’s a lot to unpack with this still-fresh stock. So, let’s start with an appetizer of technical analysis, and see if there’s still some sweet green to be derived from Sweetgreen.
A Closer Look at SG Stock
On Nov. 17, Sweetgreen priced its IPO at $28 per share. Earlier that month, as InvestorPlace contributor Shrey Dua, observed, the company had targeted an initial share price between $23 and $25.
In other words, it appears that there may have been some hype-fueled price inflation happening from the outset.
Thus, after much built-up anticipation, SG stock finally started trading on the New York Stock Exchange on Nov. 18. You might be able to guess what happened on that first day. Amazingly, the buyers ran the stock all the way up to $51.
The momentum continued through the next day as SG stock touched a high of $56.20, literally double the IPO price.
In hindsight, we can see that this rally was too much, too soon. Once the sellers entered into the picture, it was all downhill from there.
Early December has been absolutely brutal for SG stock, as the share price tumbled to $25 and change by Dec. 3rd
A Bad Sign, but Also Some Good Ones
It’s sometimes considered a bad omen when a stock plunges below its IPO price. So, is there hope on the horizon for Sweetgreen’s investors? Perhaps there are reasons to like this intriguing little restaurant chain.
First of all, Sweetgreen is a brand that can appeal to health-conscious consumers. Some folks might speculate that the Covid-19 pandemic has caused people to take their health more seriously.
Second, Sweetgreen looks like a growth story in the making. Currently, the company owns and operates 140 restaurants in 13 states and Washington, D.C.
Furthermore, it appears that Sweetgreen is taking e-commerce seriously. Only 32% of the company’s revenue is derived from in-store sales, while the other 68% comes from Sweetgreen’s digital channels.
Feast On Those Revenues
So maybe, we shouldn’t pigeonhole Sweetgreen as a typical, traditional restaurant chain.
Really, between the e-commerce sales and the company’s eagerness to deliver its products, Sweetgreen is as modern as one could expect a salad seller to be.
Dua drove this point home, observing that “Work-from-home trends are detrimental to Sweetgreen’s sales. Pre-pandemic, Sweetgreen was a popular office choice and had more than 1,000 drop-off points across numerous workplaces.” Perhaps this helped to drive the company’s robust revenue growth over the past year or so.
In an S-1 registration statement, Sweetgreen reported an impressive $243.4 million in revenue through Sept. 26 of this year.
That’s a substantial improvement over the already considerable $161.4 million in revenue from the equivalent period of 2020.
The Bottom Line
The company’s revenue growth, along with its strong push into e-commerce and home delivery, make a strong bullish case for Sweetgreen. On the other hand, technical analysts probably won’t like the price action of SG stock, so far. Therefore, if you’re more technically focused, you might want to look elsewhere.
If you’re willing to overlook that aspect of the trade, however, then you could try a healthy helping of Sweetgreen shares today.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
