Cava Group: A Sizzling Restaurant Stock with Room to Grow
The restaurant industry has seen its fair share of winners and losers, but Cava Group (NYSE: CAVA) is one stock that’s been sizzling hot. After reaching an all-time high of over $170 in 2024, the stock pulled back, presenting a buying opportunity for investors. Argus Research analyst Christine Dooley is bullish on the stock, reiterating her buy rating and $158 price target, which represents a 37% upside from the current share price.
Impressive Growth Metrics
Cava Group’s growth story is nothing short of impressive. In the third quarter, revenue surged 39% year-over-year, driven by the opening of new locations and impressive same-restaurant sales growth of 18%. This demonstrates the brand’s broad appeal and its potential to become a major cultural cuisine category.
Profitability and Expansion
What’s even more impressive is the company’s ability to expand in a profitable manner. Net income improved significantly from $6.8 million in Q3 2023 to $18 million in Q3 2024. Cava’s restaurant-level profit margin of 25% is on par with industry leader Chipotle Mexican Grill, which has delivered exceptional returns for investors over the years.
Valuation Concerns
However, Cava’s valuation is a concern. The stock trades at a price-to-sales multiple of 14.8, which is relatively high for a restaurant chain. While this might be justified for a fast-growing software company, it’s steep for a restaurant chain.
A Word of Caution
While Argus Research analyst Christine Dooley sees the dip as a buying opportunity, I wouldn’t follow her recommendation. Cava might rebound in the near term, but its upside potential may be limited over the next few years until the company grows into its high expectations.
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