Why Sweetgreen Stock Is a Buy after Its IPO Surge

Sweetgreen stock surged 76% higher right after its IPO. At least, investors who got in through Robinhood's IPO Access platform saw those sorts of gains. If you waited for Sweetgreen (NYSE: SG) to hit the exchange at $52 a share, then your investment has been mostly flat.  

But that could mean it's not too late to dive in. This is one of the more promising IPOs of the year. 

Imagine buying Starbucks Corp. (NASDAQ: SBUX) at $17 a share, or Chipotle Mexican Grill Inc. (NYSE: CMG) at $22.

Starbucks would have banked you a 552% profit today.

Chipotle now trades for $1,332, so... your investment would have grown 5,954%.

Buying Sweetgreen stock after the IPO just might be one of those opportunities.

Because the company was considered an urban "office lunch" location early on, the pandemic put Sweetgreen in a tough spot. People were no longer commuting to work, and lockdown orders even closed many locations temporarily.

Sweetgreen has more fight left, however. Just like Chipotle and Starbucks worked to provide contact-free and order-ahead services, Sweetgreen has been able to pull some pandemic and post-pandemic tricks out of its hat.

In fact, one could argue that Sweetgreen has done even more to put itself on the map in the last year. Naturally, that makes it a great time to IPO.

Now that the stock is trading, here's all you need to know about Sweetgreen stock and whether it's a buy today...

What Is Sweetgreen?

Sweetgreen is a salad chain based in Los Angeles. The company was started in Washington, D.C., by Georgetown University alumni Nicolas Jammet, Nathaniel Ru, and Jonathan Neman. They moved the headquarters to LA in 2016.

The three founders claim they started the company after realizing they had only two options when choosing to eat out: "slow, expensive, and fresh - or fast, cheap, and unhealthy."

Today, Sweetgreen operates 122 stores with over 4,000 employees in 12 states including Colorado, New York, New Jersey, Pennsylvania, Maryland, Virginia, Texas, and Florida.

The operation is primarily a fast-casual, delivering big, hearty salad bowls. It has rotating seasonal menus serving fresh salad combos, warm bowls, and sides. Customers can also design their own salads if they wish.

Unfortunately, Sweetgreen was not an exception when it came to restaurants struggling through the pandemic. The company had to cut 20% of its workers to deal with the massive decrease in demand.

And that demand has not necessarily come back. The "office lunch" experience disappeared for the year 2020, and even more people will continue to work from home in the post-pandemic world. Upwork claims that 41% of Americans currently work remote and that 26% will continue to do so through the end of the year.

But Sweetgreen knows that when demand leaves the room, you go and find it. Here's how it could still thrive without the office lunch crowd.

How Sweetgreen Is Taking Control of Its Destiny

Even before the pandemic, Sweetgreen had emphasized the mobile app experience.

Its own app launched in 2015, enabling customers to order ahead and even track their order in real time up to when it is ready. Customers can specify their orders, ingredients, dietary restrictions, and more.

The Sweetgreen app can also integrate with Apple's health app to exchange nutritional information, allowing people to track their calories.

While ordering ahead through the app would have provided for a more contact-free dining experience, Sweetgreen went a step further in 2020. The company launched its own delivery service within the app.

It helps that the delivery service is native to Sweetgreen and not a partnership with DoorDash, Postmates, or another delivery service. The profits from the service belong entirely to Sweetgreen.

CRITICAL ALERT

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CRITICAL ALERT

These 19 popular stocks are like poison for portfolios - if you own these stocks, drop them immediately.


More than that, Sweetgreen has also found ways to expand its locations through the rough pandemic year by opening "ghost kitchens." These are brick-and-mortar sites that house nothing but the Sweetgreen kitchen, no dining area.

Additionally, Sweetgreen has partnered with celebrity chefs like Missy Robbins and Danny Bowien to help broadcast its brand. Tennis star Naomi Osaka also has a signature bowl at the restaurant.

Despite the COVID-19 hiccups, this company appears to be doing all the right stuff. Now, let's talk about whether Sweetgreen stock is a buy...

Should You Buy Sweetgreen Stock?

Clearly, Sweetgreen has made every effort to stay on par with the changing climate of its industry.

Even the 20% labor cut, while unfortunate for those workers, was probably a necessary evil for the company's bottom line. It demonstrated prudence on the part of the leadership, showing they can make hard decisions when the circumstances require it.

The company has been considered a "unicorn" startup since 2019, when it hit $1 billion in value. Shake Shack founder Danny Meyer was among investors contributing $150 million in that round.

The odds were against Sweetgreen in 2020. But the company still managed to make the right decisions and continued to attract private interest. It was valued at $1.78 billion in its last round, in January, after a $156 million injection from Lone Pine Capital.

Ultimately, Sweetgreen will benefit from a worldwide boost in health-consciousness over the next decade. Salads are on the rise with plant-based meats and other health and environmental movements on the horizon. And Sweetgreen will be the first to tell you that salads are getting tastier. In fact, CEO Jonathan Neman says "we want to build the McDonald's of our generation."

For these reasons, Sweetgreen is worth a buy at its current price of $48 a share. Though savvy investors might wait for the IPO lockup period to end to see if shares dip as insiders sell. 

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