Sweetgreen Inc. (NYSE: SG) is a fast-food restaurant franchise that went public at the end of last year. The prices have retraced over 50 percent after reaching a high of around $55. Investors should be wary for various reasons.
Sweetgreen is based on the notion of “healthy” fast food. A variety of sets based on fresh veggies are available on the company’s menu. In order to improve sales, the firm is in high demand for this sort of cuisine, which includes youthful office employees.
This style of meal is often seen as a healthier alternative to regular fast food. Customers can either come to the restaurant or place an order online (on the company’s website or through partner platforms) to place an order.
Sweetgreen also has a separate order form that is geared at the business clientele. The capacity to bring a set of meals to the office by noon in the heart of the service. The corporation has 150 US offices by the end of 2021, with a focus on the East Coast. The concept of the menu and the Sweetgreen ordering system, on the other hand, were appealing to the investor, and the shares immediately surged in price in the initial days of the IPO.
In addition, potential investors were interested in Sweetgreen’s fast-growing revenue, which is expected to increase by 54 percent to $340 million in 2021. The gain was fueled by a 25% increase in like-for-like sales and the addition of 31 additional eateries. It is critical that the firm maintains high like-for-like sales and new restaurant openings at this time. Sweetgreen’s consolidated sales growth will likewise be good in this instance.
However, there are certain risks that may alert potential investors. In particular, these are too big losses for Sweetgreen. The company reported a net loss of $153 million in 2021, giving it a net margin of minus 45%. But since Sweetgreen is not a software or biotech company with large R&D investments, such a loss could be a concern. Moreover, the restaurant chain is not only unprofitable, but it is also still extremely far from profitability.
Another danger is the variety of recipes that use a big number of fresh vegetables, which necessitates a high level of preparation culture as well as particular storage and transportation circumstances. In the long term, a failure of one of these components might result in substantial reputational harm.
It’s also worth noting Sweetgreen’s potentially high volatility as a result of the aforementioned causes. Even though the company’s shares have only been traded for a short time, they have risen and fallen at a rapid pace. SG stock was trading at $28.02 on April 21.