Sweetgreen is a great example of the fact that IPO investing is probably the worst possible strategy one could come up with. Despite its material rise from the bottom at $6.10 a share two years ago to $26.50 now, the stock is still down 50% since its public debut. The question is, can investors expect the recovery to continue or should they cut their losses right away?
The first thing to say about Sweetgreen is that it is a very risky bet. Sales have been growing rapidly in recent years, but the company has only just achieved store-level profitability in 2024. It also remains to be seen if the salad restaurant chain could differentiate itself from the rest of the pack. Management is hoping to do it with the Infinite Kitchen food-making robot, which it hopes to roll out in at least half its stores. We’ve yet to find out how that would play out on a large scale. From an Elliott Wave point of view, however, the odds seem to be in the bulls’ favor, as the chart below reveals.
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The recovery from $6.10 to over $45 a share can easily be seen as a five-wave impulse pattern, marked 1-2-3-4-5. The five sub-waves of wave 3 are also visible, while wave 5 is an ending diagonal. According to the theory, a three-wave correction follows every impulse. That’s precisely what happened to Sweetgreen stock as it fell to barely above $20 earlier this month. The bears failed to break the 61.8% Fibonacci support, though, and given the complete Elliott Wave cycle now in place, the uptrend can be expected to resume going forward.
That being said, the company’s capital expenditures exceed operating cash flows. If this continues to be the case, Sweetgreen is likely to resort to shareholder dilution to finance further expansion. If the Infinite Kitchen doesn’t live up to expectations, the entire fundamental bull thesis is likely going to collapse. The above-shown Elliott Wave setup will not help investors in that case.
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