Sweetgreen (SG) Stock Costs Less Than $11 a Share. Here's Why I'd Still Not Buy It.
Key Points
Sweetgreen has been struggling, but it also posted a modest revenue gain in its last reported quarter.
Its future is not certain, and risk-averse investors might want to look elsewhere.
- 10 stocks we like better than Sweetgreen ›
If you love ordering salads from Sweetgreen (NYSE: SG) and see that its share price is just $10.10, you might start thinking about investing in it. I'd caution you to think twice, though, for multiple reasons. Here's why I am not planning to invest in it, despite enjoying its Harvest Bowls.
My main reason is this: The company is struggling. It did post a 3.8% increase in revenue in its second quarter, to $197 million, but sales at locations that have been open more than a year dropped by 6.2%. It posted an operating loss of $27.4 million, a bit greater than the year-before loss of $26.4 million. It opened two new restaurants, net, versus nine in the year-ago quarter.
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Is the company doomed? Not necessarily. It has been struggling, with issues such as inflation making it hard to keep costs and prices down, and also making it hard for many would-be customers to justify buying somewhat costly salads. The cyclospora outbreak didn't help, either.
But management said in the quarterly report that:
Our results are not where they need to be, but the progress we saw in the second quarter reinforces our confidence that the plan is working... Guests are responding to wraps, restaurant execution is improving, and transactions strengthened throughout the quarter. We remain focused on ... bringing more guests into Sweetgreen, and rebuilding restaurant-level profitability.
It's promising that the company is working on turning itself around, but I'd rather wait for it to become profitable. There are, after all, plenty of other exciting portfolio candidates.
Whether you're intrigued by Sweetgreen or not, it's important to understand that a seemingly "cheap" stock price doesn't mean a stock is a good buy. Sweetgreen, for example, is not profitable at the moment. But PepsiCo, recently priced at $131 per share, is hugely profitable and seemingly undervalued, with a recent price-to-earnings (P/E) ratio of 16 and a fat dividend yield of 4.6%. A stock's share price alone doesn't really tell you much.
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool recommends Sweetgreen. The Motley Fool has a disclosure policy.
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