In the first quarter of 2024, restaurant company Sweetgreen (SG -0.24%) was among the stock market's top performers. As of this writing, shares of the salad-centric chain are up 115% year to date and have doubled in only the past month. It's a nice reprieve for shareholders, considering Sweetgreen stock has largely trended downwards since it went public in 2021.
Sweetgreen stock started skyrocketing for fundamental reasons, which is good. On Feb. 29, the company reported financial results for the fourth quarter of 2023. Q4 revenue was up 29% from the prior-year period. But its restaurant-level profit margin surged from 11% last year to 16% in Q4, which is a massive improvement.
Therefore, Sweetgreen's financials are improving already, which is why the stock is up sharply in recent weeks. And management hopes to continue financial improvements as it further develops its margin-enhancing robotic kitchens.
Yet if there's one area that I can criticize Sweetgreen, it's its profitability. The company has promising economics, but still had a full-year net loss of $113 million. In other words, it still has a long way to go to live up to its potential.
For investors who like the idea of investing in salad, there's another publicly traded company that has a strong salad game. But fortunately, it does more than salad. And the business is growing and delivering profits for shareholders today.
Meet the other "salad stock"
Chicago's Portillo's (PTLO 1.63%) is known for hot dogs, crinkle-cut fries, and Italian beef sandwiches. But don't cry foul at me for calling it a salad stock. According to management, its restaurants average $650,000 in salad sales annually. With 84 locations at the end of 2023, this means Portillo's is a $55 million salad brand.
Of course, Portillo's sells far more than salad. And its complete menu took average annual sales per location to an impressive $9.1 million in 2023. These high sales per location give the company profitability at the restaurant level like Sweetgreen. But it also does enough volume for the entire business to be profitable -- that's huge for a restaurant chain with only 84 locations.
Investors shouldn't sleep on Portillo's long-term plans. Management believes it can have 600 restaurants someday. And it plans to methodically open new locations to get there. In 2024, it hopes to open at least nine, which would represent almost 11% growth.
By opening new locations and by growing sales at old locations, revenue for Portillo's is growing. In its fiscal 2023, revenue was up 16% to $680 million. And it will likely have double-digit growth in fiscal 2024 as well.
This is significant when comparing Portillo's with Sweetgreen. Sweetgreen expects 15% year-over-year revenue growth at most in 2024, which is comparable to expected growth for Portillo's. However, from a price-to-sales (P/S) valuation perspective, Sweetgreen stock is four times as expensive.
SG PS Ratio data by YCharts
Here's the thing: I don't believe the long-term opportunity for Sweetgreen is necessarily more attractive than the opportunity of Portillo's. For its part, Sweetgreen is targeting 1,000 locations, whereas Portillo's is targeting 600. But considering Sweetgreen already has 220 locations and Portillo's only has 84, the long-term growth opportunity is comparatively higher for Portillo's from today's starting point.
And let's not forget that Portillo's is profitable now, with $55 million in trailing-12-month operating income. That makes it the safer of the two as well, in my view.
Therefore, when comparing it to Sweetgreen stock, Portillo's is growing at a comparable rate, the stock is far cheaper, the business is far more profitable, and its long-term growth potential is comparatively higher.
For all of these reasons, I'd say that Portillo's stock is clearly the better buy right now.
