Restaurant Stocks: A Hidden Gem Worth Considering
The recent addition of Domino’s Pizza to Berkshire Hathaway’s portfolio has sparked investor interest. However, with over 21,000 locations worldwide, Domino’s growth potential may be limited. Instead, investors might want to explore alternative restaurant stocks with more upside potential.
Cava Group: A Growth Story Unfolding
Cava Group, a Mediterranean fast-casual chain, shares similarities with Chipotle Mexican Grill, a successful growth stock of the past decade. Both companies focus on high-quality ingredients, assembly-line preparation, and customer customization, leading to strong restaurant-level margins and reduced food waste.
Impressive Performance
Cava’s recent quarter saw a 50-basis-point improvement in restaurant-level margins to 25.6%, comparable to Chipotle’s 25.5%. Same-restaurant sales surged 18.1%, driven by a 12.9% increase in guest traffic, despite price hikes. The company’s strong pricing power and menu innovation have contributed to its success.
Expansion Opportunities Abound
With only 352 locations, Cava has significant room for growth. The company plans to open 56-58 new locations in 2024 and aims for 17% unit growth in 2025. Its solid free cash flow generation enables expansion without debt, reducing the risk of overextension.
A Compelling Long-Term Investment
While Cava’s stock may appear expensive, its long-term potential is undeniable. If the company maintains its growth pace, it could rival Chipotle’s scale in 10-15 years. For patient investors, Cava Group presents a compelling growth opportunity.
Before You Invest…
Consider exploring other top stocks identified by The Motley Fool’s Stock Advisor analyst team. Their recommendations have historically produced impressive returns, and their guidance can help you build a successful portfolio.
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