By Evie Liu

Fast-casual restaurant stocks were the growth darlings of the postpandemic dining boom, but the past year has been a reality check. Shares of Chipotle Mexican Grill, Cava Group, Sweetgreen, Shake Shack, and Wingstop have all stumbled at various points, but some have been rising again over the past month.

Consumers pulled back from dining out as inflation ate into discretionary spending. As fast-food chains leaned harder into "value" offerings and casual dining restaurants strengthened their menu and service, fast-casual brands -- typically at higher price points than fast food -- saw their customers visit less.

Costs compounded the problem. Labor remained elevated, while high input prices -- from food ingredients to packaging -- pressured margins, not to mention the tariffs that made many imported produce more expensive. Many chains are still in expansion mode that requires capital for new unit growth, but returns looked less certain in a softer demand environment.

Many of these companies were coming off premium valuations that left little room for disappointment. When same-store sales decelerated -- even modestly -- stocks reacted sharply. As valuations came down to more defensible levels, however, the group is showing signs of recovery lately.

Since March 27, Sweetgreen jumped 46%, while Shake Shack and Cava each have gained nearly 19%.

The rally may reflect the broader rotation back into growth stocks. As investors no longer expect the Federal Reserve to keep raising rates aggressively, they have become more willing to pay for companies with long growth runways. Since the end of March, the Vanguard Growth exchange-traded fund has gained 20%, outperforming the value fund by 14 percentage points.

Fast casuals' recent bounce suggests investors are willing to give the group another chance. Whether that optimism is justified, however, will depend on whether the companies can prove their growth stories are durable. Investors looking to ride along should pick carefully.

Shake Shack appears better positioned. The stock fell sharply last year after the company posted slower-than-expected same-restaurant growth. But things have improved since then. In the fourth quarter, total revenue increased 22% from last year, while comparable sales edged up 2.1% -- much better than most peers.

The chain is set to report first-quarter earnings on Thursday before the market opens. Wall Street analysts polled by FactSet expect same-restaurant sales growth to accelerate to 4.7% and total revenue to grow 16% from the year-ago period. Analysts have an average target price of $116, suggesting a 20% from the stock's current level.

Investors need to be more careful with Cava. In the fourth quarter, while total revenue rose 21% from a year ago, it was mostly driven by the chain's aggressive unit expansion. Comparable sales edged up just 0.5% from a year ago -- the worst since the company went public in 2023 -- as guest traffic declined 1.4%.

The stock jumped as investors were encouraged by the company's guidance that comparable sales should grow 3% to 5% in 2026. Management noted positive sales trends in the first quarter, and said that it won't increase prices any more this year beyond the 1.4% hike in January. This would allow it to maintain "strong everyday value," said Cava.

Cava shares have been rallying since last November and gained nearly 80% over the last six months. The stock now trades at 152 times forward earnings -- far from being cheap. Wall Street is cautious whether the stock could further go up. The consensus target price is at $90, right around the stock's current price.

Sweetgreen, meanwhile, should be avoided for now. In the fourth quarter, net revenue decreased 3.5% from a year ago as same-store sales contracted 11.5%. What's more, the company isn't profitable yet, posting a net loss of nearly $50 million and widening the loss margin by 14 percentage points from a year earlier.

After years of chasing growth, management has shifted its focus toward profitability, closing underperforming stores and streamlining operations. In February, the company also started testing wraps priced under $15 -- cheaper than its salad bowls -- to attract customers with lower budgets. If the pilot goes well, Sweetgreen expects to expand the new offerings in mid-2026.

Investors shouldn't rush to jump in until they see actual proof of increasing sales and, more importantly, profit. Despite the bounceback, Sweetgreen shares are still 78% down from two years ago. Analysts expect the stock to stay where it is at around $7. Sweetgreen is set to report earnings on Thursday after the market closes.

As Cava, Shake Shack, and Sweetgreen stocks gained, Chipotle -- often viewed as a leader among fast-casual chains -- continued to see weakness. Much of the burrito chain's recent growth has been driven by new restaurant openings rather than consumers visiting more often.

For the three months ended in March, Chipotle grew net revenue by 7.4% to $3.1 billion, but comparable restaurant sales increased just 0.5% from a year ago.

Shares are down about 35% over the past 12 months, and are now trading near historically low valuations. Investors will be watching whether the fast-casual chain could revive same-store visits over the course of the year.

In February, Chipotle announced a "recipe for growth" strategy that includes upgrades to its kitchen equipment and plans to speed up food preparation. The company also spent more on marketing, revamped its loyalty program, and leaned on new menu items -- especially limited-time offers -- to boost sales.

Wall Street is optimistic about the turnaround. About two-thirds of analysts polled by FactSet have a Buy rating on the stock, with an average target price of $44, implying about 33% upside from current levels.

Write to evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 06, 2026 13:43 ET (17:43 GMT)

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