Green, Sweetgreen
When I'm searching for new companies to invest in, I'm drawn to stories of resilience, growth, culture, and purpose. Though it's rare to find a business that ticks all these boxes, sometimes these stories are right in front of us, waiting to be discovered. Sweetgreen is one such story, poised to revolutionize the restaurant industry and create value for shareholders over the next decade.
During my time at Wayfair's Boston offices, I would frequently see the large volume of Sweetgreen lunch deliveries. I even had lunch a couple of times at their Pru location, but I never thought to delve deeper into the business. However, on a recent trip to Tampa, while exploring the Hyde Park neighborhood, my daughter suggested Sweetgreen for lunch. This time, I paid close attention since I was searching for a new business to explore, perhaps outside the technology sector. The Shroomami salad I had was delicious and was prepared and served by a friendly staff member. Their transparent supply chain was on display in the store, along with a brief story about their first store. At that moment, I knew this was a story worth exploring further.
What sets them apart? The company's mission is "To Build Healthier Communities by Connecting People to Real Food," opening up a wide range of expansion possibilities. Furthermore, they operate on the principle of "Win, Win, Win," striving for victories for the customer, company, and team members. By mostly hiring internally for management positions, they can maintain their culture and reduce turnover. With digital-based revenues at 60%, the company is already leveraging technology to its advantage. What truly impressed me was what I discovered next. Some may recall the MIT-born robotic startup, Spyce, which made headlines a few years ago. Sweetgreen acquired them for 50 million dollars during the pandemic and developed the concept of an infinite kitchen. Their first concept store with this technology is already operational in Naperville, Illinois. Just imagine the possibilities of offering this technology as a service to schools, offices, and even other restaurants. This, in my opinion, is a very high-value call option on the stock.
What about the financials? A great story aside, is it profitable? Sweetgreen is experiencing 27% year-over-year growth, and its restaurant business is already profitable, with a profit margin of around 20%. With 220 stores in the US and an AUV of 2.6 million dollars, the restaurant business generates enough cash to open another 40-50 stores every year in a financially responsible manner. Sweetgreen is a highly data-driven company, analyzing all metrics upfront before entering or expanding in a market. The company achieved an EBITDA profit for the entire business last quarter and expects to be marginally profitable in 2024. Currently trading at a market cap of 6 times their annual revenue, it's not cheap, but it's not as expensive as CAVA, which is trading at around 12 times the revenue. By comparison, Chipotle is trading at 8 times the revenue. Some may argue that valuation should be based on profits alone, but for a company like this where the story runs deep, it makes sense to compare based on top-line figures. I am confident in Sweetgreen's ability to catch up on profitability, or in other words, its growth trajectory.
To sum up, Sweetgreen is a mission-oriented, technology-enabled, and data-driven company. It has all the hallmarks of a multi-bagger stock. Though its value has already risen significantly from the lows, I believe it will be a long-term investment. I've taken an initial position and plan to build on it over the next several months or even years.
