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Time to Buy the Post Earnings Rally in Cava Group's (CAVA) Stock?
With its business model somewhat mirroring Chipotle Mexican Grill (CMG - Free Report) in regards to Mediterranean cuisine, Cava Group (CAVA - Free Report) has been one of the top-performing stocks since its IPO last year.
The remarkable rally in Cava Group’s stock continued after the company was able to exceed Q2 top and bottom line expectations Thursday evening.
However, investors may be wondering if they should chase the rally in CAVA which popped +19% on Friday and has now skyrocketed +183% year to date to largely outperform the broader market and Chipotle’s +17%.
Image Source: Zacks Investment Research
Cava Group’s Q2 Results
Cava Group posted Q2 sales of $233.5 million which soared 35% from $172.89 million in the comparative quarter. This also exceeded estimates of $222.03 million by 5%.
On the bottom line, Q2 EPS of $0.17 dipped from $0.21 per share a year ago but surpassed estimates of $0.13 a share. Other highlights included a 9.5% spike in traffic with Cava Group opening 18 new restaurants including locations in Chicago, in a bid to enter the Midwest market.
Notably, Cava Group has exceeded earnings expectations in each of the five quarters it has reported since going public.
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Cava Group's Growth Trajectory
Based on Zacks estimates, Cava Group’s total sales are now projected to climb 24% in fiscal 2024 to $907.58 million compared to $728.7 million in 2023. Cava Group’s top line is expected to expand another 20% in FY25 to $1.09 billion.
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Annual earnings are expected to soar 66% to $0.35 a share versus EPS of $0.21 last year. Plus, FY25 EPS is slated to increase another 34%.
Image Source: Zacks Investment Research
Cava Group’s Valuation
Despite its expansive growth trajectory, Cava Group is trading at a far-stretched forward earnings premium of 291.3X although this can be expected for a company that recently went public.
However, Cava Group also trades at a noticeable sales premium to the broader market at 12.8X with the S&P 500’s average at 5.4X and Chipotle at 6.4X.
Image Source: Zacks Investment Research
Bottom Line
Although Cava Group’s Q2 results helped to reconfirm its expansion, CAVA lands a Zacks Rank #3 (Hold). Cava Group is certainly an intriguing long-term investment but there could be better buying opportunities considering its monstrous YTD rally which has stretched the company’s valuation.