Cava Group (NYSE: CAVA) has been among the finest restaurant shares to personal this yr. The fast-casual Mediterranean-style restaurant chain has been successful over not simply prospects, however buyers as properly. Via enlargement and new menu choices, it has been capable of frequently report strong numbers, propelling its share worth to new heights.
Just lately, the corporate reported its newest earnings numbers, and one metric stood out to me. It highlights the enterprise’s spectacular progress, and it is an ideal signal that the corporate goes in the proper path.
Cava’s same-restaurant gross sales got here in at 18.1%
For a restaurant chain, producing single-digit comparable gross sales progress is an effective objective, particularly amid right this moment’s financial situations as customers are reducing again on spending.
However you would not know the financial system is going through these challenges when you checked out Cava’s numbers. That is as a result of for the newest interval, which ended on Oct. 6, the corporate reported its comparable restaurant gross sales progress was a formidable 18.1%. By comparability, Chipotle Mexican Grill reported comparable restaurant gross sales progress of 6% for its most up-to-date quarter (ended on Sept. 30). And the numbers look even higher for Cava when you examine its outcomes to the worldwide beast that’s McDonald’s — for its September quarter, world comparable gross sales declined by 1.5%.
Comparable restaurant gross sales are a key metric for eating places as they inform buyers how properly the enterprise is doing when factoring in areas that have been open a yr in the past. This excludes the optimistic affect new restaurant openings would have on the highest line.
However this additionally works to the benefit of firms with smaller footprints similar to Cava, which can goal high-growth areas first and as they turn out to be bigger and unfold out, their progress price might start to progressively come down. Nonetheless, it is a good indicator of Cava’s progress and the potential it has to proceed producing sturdy numbers as demand seems to be strong.
A quick progress price has made Cava a stellar funding to personal
An enormous cause Cava is a sizzling inventory to personal this yr is due to its progress potential. The corporate frequently opens extra shops. On the finish of the newest quarter, the corporate had 352 eating places, up from 290 a yr in the past. Its objective is to have 1,000 areas by 2032.
Cava’s progress price has been spectacular compared to different restaurant chains, and with such formidable targets forward, that pattern is prone to proceed within the years forward.
CAVA Operating Revenue (Quarterly YoY Growth) knowledge by YCharts
Is Cava’s excessive valuation an issue?
As of Monday’s shut, Cava’s inventory was up a staggering 219% as there was no scarcity of bullishness across the enterprise of late. Whereas that is nice for shareholders, people who find themselves wanting to buy the inventory for the primary time might really feel as if they’ve missed the boat.
Cava Group’s gross sales grew by practically 40% final quarter to $243.8 million. Its internet revenue rose at an excellent quicker price of 163%, coming in at just below $18 million. Whereas that’s spectacular, it nonetheless leads to a reasonably modest per-share revenue of simply $0.16. Cava’s inventory closed at $137.24 on Monday, placing its price-to-earnings multiple at greater than 330. Even primarily based on analyst projections, it is buying and selling at over 277 occasions subsequent yr’s income. These are steep multiples and buyers can be justified in considering twice about whether or not the inventory is an effective purchase at its present ranges as a result of with such excessive multiples, you’re successfully paying for lots of future progress.
Whereas Cava should still be a great funding to carry for the long run, buyers must also mood their expectations because it may very well be a bumpy journey forward. Though this can be a fast-growing firm, its extraordinarily excessive valuation means that there’s nearly no margin of safety with the inventory and it may very well be susceptible to a sell-off underneath weaker market situations.
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David Jagielski has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Chipotle Mexican Grill. The Motley Idiot recommends Cava Group and recommends the next choices: brief December 2024 $54 places on Chipotle Mexican Grill. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
