Be Careful Out There…
Maybe you saw a week or so ago that a restaurant chain called Sweetgreen joined Wall Street in an initial public offering.
I know precisely zero about Sweetgreen. Don’t know where a single restaurant is located. Don’t know if the food is any good…though the first picture under the “menu” link on their website shows a salad populated with brussels sprouts—so I have my doubts.
Personal food proclivities aside, here’s what I do know: Sweetgreen is an unprofitable company. Had $240 million in sales in the 12 months that ended in September, and never earned a cent in the last seven or eight years.
Nothing necessarily wrong with that—lots of companies go public on Wall Street with a string of annual losses, and they go on to survive just fine.
No, my beef here is not with Sweetgreen (though I really do question the necessity for vile weeds called brussels sprouts to show up on anything edible). My beef is with investors who these days think there’s no such thing as an irrational valuation.
See, Wall Street immediately bid up Sweetgreen’s stock to more than $50 per share from its initial public offering price of $28. Today, even after the recent COVID-inspired market volatility, the price is in the low-$40s.
At that price the Street values a never-profitable restaurant chain at more than 3x its sales. And on a per-eatery measure, investors are valuing each Sweetgreen at more than $16 million.
Now, I know that inside-baseball gibberish doesn’t mean much to anyone, so I will just say this: The restaurant industry is formidable in its competitiveness, and when Sweetgreen’s per-restaurant value is wildly higher than Chipotle, McDonald’s, and Starbucks (the big three), well it tells me Wall Street’s hopped up on hopeium and all the free money the Federal Reserve is pumping into the economy.
Back in the late-’90s, I saw something similar.
Every new tech stock that debuted on the Nasdaq was priced more richly than the last. Often, the Street’s over-exuberant analysts justified the ridiculous valuations by fabricating the most inane, nonsensical measurements.
I once saw a well-known analyst use “price-per-eyeballs”—how many people were visiting a particular website—as a way of claiming that some new internet startup (now dead) was worth a bazillion dollars.
As though, what—eyeballs spend money?
To me, nothing is ever different unless it is truly different.
Crypto is truly different because it’s changing the way everything in the world works, including fundamentally changing how the internet itself works and how we will interact with it very soon.
But a restaurant? That serves salads?
With brussels sprouts on them?
Sorry, but not sorry—that’s not a revolutionary way of eating or dining or feeding people.
There’s not a single thing that’s unique about a salad chain. Been to lots of those in my time—which reminds me: I really miss going to Souplantation at Lakewood Center in Southern California, which just now I read closed last year because of COVID. That’s a shame.
Anyway, over-exuberant valuations for a run-of-the-mill eatery tells me that the Street is in the throes of a thoughtless frenzy. Investors have so much money, they’re buying anything—and bidding it up—just to buy.
That never ends well.
So, be careful out there. Even amid the current COVID-inspired market turmoil, irrationality is running rampant. Valuations are pressing up against extremes. Salad bars are being priced like they’re tech stocks.
And people are now putting brussels sprouts on salads!
The world is in deeper trouble than I thought…