Scott Olson/Getty Images News
- Hedgeye adds Sweetgreen (SG -11.0%) as a Best Idea Short.
- Analyst Howard Penney notes the company is showing early success as a public company despite never turning a profit, but is wary on the path ahead.
- "The stock will likely be significantly lower in 3-6 months after the initial hype has died down, and the lock-up has expired. SG is the latest example that the market will pay almost any price for the good growth story, especially in restaurants, but this one lacks staying power. Even the underwriters were saying that SG might not be profitable until 2025," warns Penney.
- Penney and team do not see how the current multiple will hold up in an environment where the restaurant operator is expected to post same-store-sales of -20% to -30% in early Q2 of 2022 and will remain negative for the year’s balance.
- The analyst quiet period on Sweetgreen does not expire for another few weeks, which will be a test of the valuation rationale.
- Sweetgreen trades off its post-IPO high of $56.20, but is still about 70% higher than the IPO pricing level.