Copyright fool
The market is in thriving bull form these days, driven by excellent results from top artificial intelligence (AI) companies. The S&P 500 is up 16% this year, and companies like Meta Platforms, Amazon, and Alphabet just gave investors a lot of good news. However, these massive companies account for a disproportionate percentage of the S&P 500's value. Since it's a weighted index, its 500 or so components are not equally represented, and it may not provide a completely accurate picture of the economic landscape. In fact, many industries are still grappling with the effects of inflation, and many companies are still struggling. Consider Sweetgreen (SG +0.94%). The fast-casual restaurant chain has had mixed results over the years, and its stock has been up and down. Things don't look so good right now, and the stock is down 87% from its first-day closing price. However, Wall Street see brighter times ahead. Is it worth the investment today? New standards in fast food The fast-casual space has been around for a number of years already, but young companies like Sweetgreen are still making their mark. Chipotle Mexican Grill is the undisputed leader of the pack, but Sweetgreen, Cava Group, and other small chains are all trying to make their versions work. In a better economy, this style makes sense. These companies offer fresh, healthy fare in a more premium setting than the typical fast-food joint, but they're still a lot cheaper than fine dining. However, as customers become more cost-conscious, the model is under pressure. Customers can't spend on office lunches the way they used to, and they may not be springing for takeout at all, especially if they're working from home. Restaurants are also dealing with cost increases due to tariffs. Sweetgreen, which offers healthy options focused on salads, has been having a tough time making a go of its concept in this environment. Last year, it seemed to be making more headway, but its most recent results have been disappointing for investors. It's more than the environment All of these fast-casual chains are feeling pressure today, but Sweetgreen's performance has been especially dismal. In its 2025 fiscal second quarter (ended June 29), sales inched up 0.5%, driven entirely by new stores. Comparable sales were down 8.8%, eating into whatever extra revenue came from new stores. Average unit volume fell from $2.9 million to $2.8 million, and operating margin fell from negative 8.8% last year to negative 14.2% this year. CEO Jonathan Neman gave investors an update as to how the company is addressing some of its issues. From a premium company with premium pricing, customers are expecting a better experience. Sweetgreen increased its chicken and salmon portions by 25%, and it improved many of its recipes. Only about a third of the company's restaurants are operating at what management considers an excellent standard, and it's working on creating more consistent operational measures across the enterprise. There's still a long-term opportunity Sweetgreen is expecting to open 40 new stores in fiscal 2025, and its goal is to reach 1,000 stores. That gives it plenty of room to expand. At the same time, all of these restaurants are figuring out how to navigate the changing tariff landscape, and at least some of the current problems are likely to be solved as the economic environment improves. Wall Street, for now, is unanimous in its price target consensus for gains over the next 12 to 18 months. That's not so hard to imagine given the current state of affairs, with Sweetgreen's stock teetering at around $6 per share. The average price target is 75% higher than today, with a high of 186% higher and a low of 27% higher. However, investors should keep in mind that this is a risky play right now. The company itself admits to internal problems, so external headwinds disappearing won't necessarily make everything OK. Even though this stock could look appetizing at the current price, trading at only 1 time trailing-12-month sales, it could be a value trap. I would wait for some significant improvement over an extended period of time before investing.
