Why Sweetgreen Stock Jumped 45% in May
Key Points
Sweetgreen said comparable sales will improve over the year.
Wraps have received a positive response after being launched nationally.
The stock is still down more than 75% from its peak, giving it plenty of room to run.
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Sweetgreen (NYSE: SG) stock has plunged over the last year and a half, but investors were willing to give it a second chance last month, and that was enough to send the stock soaring.
Sweetgreen's first-quarter results were disappointing, but its guidance indicated that the company expected its performance to begin to improve starting in the second quarter, and comps got better over the quarter and into April.
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The fast-casual salad chain also launched wraps nationally, which have received mostly positive reviews and carry a lower price point than its salads. That was enough to inject some optimism into the stock, and shares were up 45% for the month, according to data from S&P Global Market Intelligence.
As you can see from the chart below, the stock didn't really move on its earning report, but then started to gain later in the month as buzz around the wraps picked up.
SG data by YCharts
Why Sweetgreen is looking fresh again
Sweetgreem stock began to climb on May 14, gaining 5% that day, and then jumped another 17% the following day. Those gains seemed to be motivated in part by hedge funds like Point72 taking major stakes in the company in the first quarter, as those trades had to be reported by May 15.
The following week, an analyst upgrade seemed to confirm investor suspicion about the moment from the new wraps as JPMorgan Chase upgraded the stock to overweight, saying the response to wraps has been strong, and the analyst sees potential for a free cash flow inflection. He also raised his price target from $8 to $13.
Finally, toward the end of the month, the company named Cindy Olsen as its Chief Strategy Officer, a new position with the company. Olsen is expected to help drive the company's transformation, which includes the new wraps.
Image source: Sweetgreen.
Can Sweetgreen keep gaining?
It's too early to tell if Sweetgreen's momentum will last, but the stock has a lot of upside potential if it does. Sweetgreen stock is still cheap compared to its fast-casual peers, and its guidance called for comparable sales to essentially be flat for the rest of the year, a big improvement from the 12% decline it reported in the first quarter.
Sweetgreen is presenting at the TD Cowen 10th Annual Future of the Consumer conference on Tuesday morning, which could be the catalyst for another leg up on the stock, depending on what the company says. Look out for commentary on the new wraps, or other clues into where the company is headed.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in Sweetgreen. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Sweetgreen. The Motley Fool has a disclosure policy.
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