What First Watch’s IPO Valuation and Stock Forecast Tell Investors

First Watch (FWRG) has priced its IPO and is expected to go public on Oct. 1. The company raised $170 million in the offering. First Watch plans to list its shares on the Nasdaq under the ticker symbol “FWRG.” What’s FWRG’s forecast, and should you buy the stock?

Founded in 1983, First Watch operates daytime casual-dining restaurants in the U.S. The company serves breakfast, lunch, and brunch made with fresh ingredients that are produced daily in the restaurant.

First Watch is expected to start trading on Oct. 1. The company is offering 9.5 million shares in the IPO at $18 each. Previously, the company planned to offer shares for $17–$20. The net proceeds from the offering will be used to repay debt. First Watch has $294 million in total debt as of June 27.

First Watch generated total revenues of $281.1 million in the first six months of 2021—up 111 percent compared to the same period in 2020. In the first six months of 2020, the sector was hit hard by the COVID-19 pandemic that shuttered most restaurants. The company reported a net income of $1.8 million in the first six months of 2021 compared to a net loss of $31.4 million in the first six months of 2020.

In 2020, First Watch reported revenue of $342.4 million and a net loss of $49.7 million. In the second quarter, First Watch’s to-go sales increased to an average weekly rate per restaurant of $8,079 compared to $1,897 in the fourth quarter of 2019.

After a dismal year for a restaurant industry that was hit hard by the COVID-19 pandemic, the sector looks to be rebounding, as demonstrated by the recent flurry of IPOs. Dutch Bros, a drive-thru coffee company, was listed on the NYSE on Sept. 15, and its stock has soared 88 percent from its IPO price of $23.

The global fast casual restaurant market size, valued at an estimated $125.6 billion in 2019, is set to reach $209 billion in value by 2027, according to a 2020 report by Allied Market Research.

First Watch is valued at about $1 billion in the IPO. The company generated revenue of $490 million in the year ended June 27. Based on its pro forma market cap, First Watch’s trailing price-to-sales multiple is 2.0x. In comparison, Darden Restaurants stock has an NTM EV-to-sales multiple of 2.4x.

First Watch has 423 locations across 28 states, the majority of which are company-owned. The company’s restaurants are open from 7:00 a.m.–2:30 p.m.—a single shift that the company thinks helps it recruit and retain talent. Despite its limited hours, the company generated an average unit volume of $1.6 million in 2019. The same-store sales grew in 28 consecutive quarters from 2013 to 2019.

During the COVID-19 pandemic, First Watch invested in technology and introduced alcohol to its menu, which helped it recover rapidly. In the second quarter, the company reported same-store sales growth of 16.3 percent compared to the same period in 2019. It expects to have as many as 2,200 locations in the future.

Investors will be able to buy First Watch stock through any traditional or online discount broker, including Robinhood.