What happened
Shares of salad restaurant chain Sweetgreen (SG 7.73%) soared on Thursday after an analyst explained why they believe the beaten-down stock has upside from here. As of 10:50 a.m. ET, Sweetgreen stock was up 12%, even though the S&P 500 was down 1.3%.
So what
Sweetgreen went public in late 2021 and has dropped about 70% since. However, Bank of America analyst Katherine Griffin believes it has upside from here. According to StreetInsider, Griffin upgraded the restaurant stock from a neutral rating to a buy rating. And according to TipRanks, her new price target for Sweetgreen stock is $17 per share, representing about 16% additional upside from here.
Griffin is reportedly citing Sweetgreen's progress with automation as reason for her bullishness. For those unaware, Sweetgreen has over 185 restaurant locations, is expanding rapidly, and is looking to technology to help it scale efficiently.
Now what
In May, Sweetgreen opened a pilot location that is testing automation. Customers are encouraged to order via the app or in-store kiosks, and its Infinite Kitchen machine prepares most of the order. Employees then put the finishing touches on orders before giving them to customers.
The idea is that Sweetgreen can reduce costs and deliver a superior product via automation, which would be good for the business, and it's why Griffin is optimistic.
For context, Sweetgreen had a $35 million operating loss in the first quarter of 2023, and its largest operating line item was labor and related expenses, at 31% of revenue. Therefore, reducing labor costs could unlock the door to profitable growth for Sweetgreen. That's why it will be important for investors to pay attention to its progress regarding automation in coming quarters.
