First Watch Restaurant Group: A First-Rate Small-Cap Growth Stock
First Watch Restaurant Group (NASDAQ: FWRG) is a first-rate small-cap growth stock on track to triple in size over the next ten years. The company stands out among restaurants in the sit-down breakfast category, serving above-average-quality traditional breakfast alongside an eclectic menu of appetizing choices. Customer favorites include the biscuits and gravy made with turkey sausage, which easily beat competitors' made with pork sausage.
The takeaway for growth investors in early 2025 is that the stock price is well off its IPO price and 2024 highs, offering an attractive entry for long-term positions.
Valuation is among the concerns hampering the stock price action in early 2025. The company’s growth slowed from the high 20% range to significantly lower levels, sapping investor appetite. However, now growing at a mid-teens CAGR, it is forecasted to maintain this more sustainable level for at least a decade while improving operational quality with scale and efficiency. In this scenario, the company’s valuation falls to about 15X by 2035, and growth is expected to continue long after.
FirstWatch is a Top-Rated Stock According to MarketBeat Data
First Watch is well-liked by the analysts that cover it, and the trends are positive, providing support for the market. The stock is ranked in 77th position on MarketBeat’s list of Top Ranked Stocks, a list tracking and ranking U.S. stocks based on their trailing twelve-month analysts' activity. In this case, ten analysts rate this stock a Buy, with 90% rating it as Buy or higher, and only one Hold.
The trends include increasing coverage and firming sentiment, with two upgrades issued on the first day of April, no fooling. Their targets align with the consensus, which forecasts a 25% upside.
Institutional and short-selling trends have set this market up for a spike. The institutions own about 96% of the stock and have been buying on balance for many quarters, ramping their activity to record levels in Q1 even as short selling increased. The short interest has been trending higher since mid-2024 and reached a one-year high in Q1 at nearly 15%, sufficient for a short squeeze given the appropriate catalyst.
That may come in May when the company reports Q1 F2025 results. The analysts forecast a solid 16% revenue gain but have set the bar low with revisions. The company forecasts about 20% total revenue growth for the year, so it will likely give favorable guidance if not outperform consensus figures in Q1.
The development will be underpinned by the increased store count, a return to comp-store growth, and new stores planned for the year. Regarding the store count, First Watch increased the count by 9.6% in F2024 and intends to accelerate the pace to over 10% in 2025.
First Watch Can Follow Through With Its Plans
First Watch’s balance sheet suggests it can follow through on its plans to grow the business and deliver value to shareholders. Highlights at the end of 2024 include reduced cash and current assets, and increased liabilities offset by improved total assets and equity, and ultra-low leverage. Equity increased by 6%, and net-debt leverage is only 0.31X equity.
The stock price action since the Q4 release has been favorable to investors. The market pulled back but quickly rebounded to confirm support at the $16 level. The market is moving higher in early April and may continue to rise, but there are risks for near-term traders. The market is range-bound, with significant resistance at the $18.50 and $22 levels that could keep the stock from advancing in 2205.
