First Watch (FWRG): Buy, Sell, or Hold Post Q2 Earnings?

September 18, 2025 at 00:01 AM EDT

FWRG Cover Image

Since March 2025, First Watch has been in a holding pattern, posting a small loss of 0.6% while floating around $16.56. The stock also fell short of the S&P 500’s 17.5% gain during that period.

Is now the time to buy First Watch, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is First Watch Not Exciting?

We're cautious about First Watch. Here are three reasons there are better opportunities than FWRG and a stock we'd rather own.

1. Same-Store Sales Falling Behind Peers

Same-store sales is a key performance indicator used to measure organic growth at restaurants open for at least a year.

First Watch’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.5% per year.

2. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While First Watch’s free cash flow broke even this quarter, the broader story hasn’t been so clean. Over the last two years, First Watch’s capital-intensive business model and large investments in new physical locations have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2.2%, meaning it lit $2.20 of cash on fire for every $100 in revenue.

First Watch Trailing 12-Month Free Cash Flow Margin

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

First Watch burned through $29.08 million of cash over the last year, and its $959.1 million of debt exceeds the $19.18 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the First Watch’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of First Watch until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

First Watch isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 53.7× forward P/E (or $16.56 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

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