Sweetgreen stock is one to watch in 2022 after this year’s IPO

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  • SweetGreen held its initial public offering later this year, but 2022 could be even more exciting for the stock.
  • Cowen analyst Andrew Charles wrote in a note to clients that Sweetgreen is a rare example of a restaurant stock creating a new category similar to Starbucks and Chipotle Mexican Grill.
  • For SweetGreen investors, the main question is whether the company can expand into suburbs outside of its main coastal urban markets.

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In a year that was hot for restaurant IPO stocks, one of the late entries may have an even more exciting year, creating a new category and showing the power of tech investing.

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After roughly 2020, restaurant stocks outperformed this year as vaccinations and loosened restrictions boosted investor confidence in the segment. Fueled by that optimism, five restaurant companies, including Krispy Kreme and Dutch Bros, opted to go public via initial public offerings, with mixed results.

Sweetgreen only debuted in mid-November, and it hasn’t even had a chance to report quarterly earnings yet. The Salad chain priced its initial public offering at $28 per share. The stock gained 76 per cent in the first day of trading but fell 35% amid fears over the Omicron variant. Still, some are upbeat about the stock and its future.

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“SweetGreen is in the early stages of creating a new category in the restaurant industry, an opportunity that comes roughly once every decade following an IPO. [Starbucks] in 1992, [Chipotle Mexican Grill] in 2006 and [Wingstop] 2015,” Cowen analyst Andrew Charles wrote in a note to clients on December 13.

Sweetgreen is the first fast-casual salad chain to go public, but it probably won’t be the last. A flurry of other competitors, such as Chopat, Just Salad and Digg, wait in the wings with millions of dollars from fundraising.

Charles also noted that the salad chain is the restaurant company that fuses together two industry-wide trends: consumer-facing technology and transparent food sourcing.

Goldman Sachs analyst Jared Garber debuted the stock as a buy with a $48 per share price target, saying that the company, despite its small size, is at the forefront of technological innovation and integration in the restaurant industry. More than two-thirds of SweetGreen’s sales come from digital transactions, and the company bought robotics company Spice earlier this year.

For SweetGreen investors, the main question is whether the company can expand into suburbs outside of its main coastal urban markets before it becomes a major threat to its rivals’ market share. Morgan Stanley analyst John Glass also wrote in a note to clients that Sweetgreen’s unprofitability may be of concern to some investors, given that most publicly traded restaurants are profitable.

In 2021, Sweetgreen bounced back from pandemic lows, losing $86.9 million to $86.9 million as of September 26. Same-store sales are up 21% over the year-ago period.

It is expected that 2022 will bring more exciting IPOs for the restaurant industry. PF Chang was reportedly in talks to go public, and Panera Bread said in November that it plans to return to the public markets.

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