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CAVA Stock Rallies 32% in a Month: Still a Buy or Too Late?
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CAVA Group, Inc. (CAVA - Free Report) is on a tear, with its stock rallying 31.6% in the past month. The upside outpaces the industry’s 7.8% rise and the S&P 500's modest 1% upward movement. CAVA’s impressive momentum is fueled by a sustained increase in customer traffic and robust same-store sales growth, positioning it as a standout performer in the market.
Ever since the company reported second-quarter 2024 results on Aug 23, the stock has increased 4.1%. CAVA reported earnings per share (EPS) of 17 cents, beating the Zacks Consensus Estimate of estimates by 13 cents. Its quarterly revenues amounted to $233.5 million, up 35.2% year over year and surpassing the consensus estimate of $222 million. Average unit volume (AUV) increased to $2.7 million and same-restaurant sales growth was 14.4%, with traffic growth of 9.5%.
Following second-quarter 2024 results, the company also increased its full-year guidance. It anticipates same restaurant sales in the 8.5-9.5% range, up from the prior estimate of 4.5-6.5%. CAVA's restaurant-level profit margin is expected to be between 24.2% and 24.7%, up from the earlier estimate of 23.7% to 24.3%. Adjusted EBITDA is projected to range from $109 million to $114 million, up from the prior estimate of $100-$105 million.
Image Source: Zacks Investment Research
Key Drivers Behind CAVA’s Stellar Performance
CAVA's growth is supported by strategic initiatives such as the nationwide introduction of premium-priced steak and a revamped loyalty program aimed at boosting customer frequency and revenues. It is piloting AI-driven Connected Kitchen initiatives to streamline operations, improve quality and consistency and enhance order accuracy and service speed. The company’s reimagined loyalty program is set to launch nationally ahead of schedule, which is expected to drive customer engagement and revenues.
The company’s expansion effort is also aiding its performance. CAVA opened 18 net new restaurants in second-quarter 2024, bringing the total to 341 locations. It also expanded into new markets like Chicago, which has been its strongest new market entry. The company is progressing well on its Project Soul initiative, enhancing restaurant aesthetics and creating environments that foster human connection.
The launch of grilled steak was highly successful, significantly outperforming expectations and boosting sales. This new protein option filled a perceived gap in CAVA’s menu and contributed to increased customer visits.
Its strategy to deliver value and ensure long-term success is centered on four key pillars. First, the company aims to bring its Mediterranean cuisine to more communities nationwide. Second, even as CAVA grows, it focuses on fostering personal connections with its guests. Third, the company is committed to maintaining high standards of restaurant operations, ensuring excellence at every location and during every shift. Lastly, CAVA emphasizes the importance of operating as a cohesive, high-performing team.
CAVA's unique Mediterranean cuisine, paired with its strong focus on quality, relevance and convenience, is drawing in a diverse customer base. This includes those who are moving away from traditional full-service restaurants and those upgrading from typical fast-food options.
CAVA Trading at a Premium
The company is currently valued at a premium compared with its industry on a forward 12-month P/S basis. CAVA’s forward 12-month price-to-sales ratio stands at 12.28, significantly higher than the industry’s ratio of 3.87 and the S&P 500's ratio of 3.15. This suggests that investors may be paying a high price relative to the company's expected earnings growth. The company is also trading currently at a premium compared to other industry players like Chipotle Mexican Grill, Inc. (CMG - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Restaurant Brands International Inc. (QSR - Free Report) .
Image Source: Zacks Investment Research
Estimate Revision Favoring the Stock
Reflecting the positive sentiment around CAVA, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past seven days, analysts have increased their estimates for the current and next fiscal year by 10.8% to 41 cents and by 8.5% to 51 cents, respectively. These estimates indicate year-over-year growth rates of 95.2% and 23.7%, respectively.
Image Source: Zacks Investment Research
Buy, Sell, or Hold – CAVA
For existing investors, CAVA's rising customer traffic, robust same-store sales growth and expanding footprint make a compelling case to hold the stock.
For new investors, the current premium valuation — evident in the elevated forward 12-month price-to-sales ratio — suggests that the stock may be priced too high for an optimal entry point. Food, beverage and packaging costs are expected to rise — as a percentage of revenues — for the rest of the year, primarily due to the steak launch. Despite the benefits of the Connected Kitchen initiatives, the integration of AI and technology is still in the early stages. It will require time and investment to realize the potential efficiencies fully. While restaurant-level profit margins improved, the outlook suggests potential seasonal impacts, especially in fourth-quarter 2024, which could lower margins by about 200 basis points.
While CAVA's growth outlook remains positive, the stock's recent surge could limit upside potential in the short term. Waiting for a pullback or more attractive valuation could provide a better opportunity to capitalize on the company's long-term prospects.
Image: Bigstock
CAVA Stock Rallies 32% in a Month: Still a Buy or Too Late?
CAVA Group, Inc. (CAVA - Free Report) is on a tear, with its stock rallying 31.6% in the past month. The upside outpaces the industry’s 7.8% rise and the S&P 500's modest 1% upward movement. CAVA’s impressive momentum is fueled by a sustained increase in customer traffic and robust same-store sales growth, positioning it as a standout performer in the market.
Ever since the company reported second-quarter 2024 results on Aug 23, the stock has increased 4.1%. CAVA reported earnings per share (EPS) of 17 cents, beating the Zacks Consensus Estimate of estimates by 13 cents. Its quarterly revenues amounted to $233.5 million, up 35.2% year over year and surpassing the consensus estimate of $222 million. Average unit volume (AUV) increased to $2.7 million and same-restaurant sales growth was 14.4%, with traffic growth of 9.5%.
Following second-quarter 2024 results, the company also increased its full-year guidance. It anticipates same restaurant sales in the 8.5-9.5% range, up from the prior estimate of 4.5-6.5%. CAVA's restaurant-level profit margin is expected to be between 24.2% and 24.7%, up from the earlier estimate of 23.7% to 24.3%. Adjusted EBITDA is projected to range from $109 million to $114 million, up from the prior estimate of $100-$105 million.
Image Source: Zacks Investment Research
Key Drivers Behind CAVA’s Stellar Performance
CAVA's growth is supported by strategic initiatives such as the nationwide introduction of premium-priced steak and a revamped loyalty program aimed at boosting customer frequency and revenues. It is piloting AI-driven Connected Kitchen initiatives to streamline operations, improve quality and consistency and enhance order accuracy and service speed. The company’s reimagined loyalty program is set to launch nationally ahead of schedule, which is expected to drive customer engagement and revenues.
The company’s expansion effort is also aiding its performance. CAVA opened 18 net new restaurants in second-quarter 2024, bringing the total to 341 locations. It also expanded into new markets like Chicago, which has been its strongest new market entry. The company is progressing well on its Project Soul initiative, enhancing restaurant aesthetics and creating environments that foster human connection.
The launch of grilled steak was highly successful, significantly outperforming expectations and boosting sales. This new protein option filled a perceived gap in CAVA’s menu and contributed to increased customer visits.
Its strategy to deliver value and ensure long-term success is centered on four key pillars. First, the company aims to bring its Mediterranean cuisine to more communities nationwide. Second, even as CAVA grows, it focuses on fostering personal connections with its guests. Third, the company is committed to maintaining high standards of restaurant operations, ensuring excellence at every location and during every shift. Lastly, CAVA emphasizes the importance of operating as a cohesive, high-performing team.
CAVA's unique Mediterranean cuisine, paired with its strong focus on quality, relevance and convenience, is drawing in a diverse customer base. This includes those who are moving away from traditional full-service restaurants and those upgrading from typical fast-food options.
CAVA Trading at a Premium
The company is currently valued at a premium compared with its industry on a forward 12-month P/S basis. CAVA’s forward 12-month price-to-sales ratio stands at 12.28, significantly higher than the industry’s ratio of 3.87 and the S&P 500's ratio of 3.15. This suggests that investors may be paying a high price relative to the company's expected earnings growth. The company is also trading currently at a premium compared to other industry players like Chipotle Mexican Grill, Inc. (CMG - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Restaurant Brands International Inc. (QSR - Free Report) .
Image Source: Zacks Investment Research
Estimate Revision Favoring the Stock
Reflecting the positive sentiment around CAVA, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past seven days, analysts have increased their estimates for the current and next fiscal year by 10.8% to 41 cents and by 8.5% to 51 cents, respectively. These estimates indicate year-over-year growth rates of 95.2% and 23.7%, respectively.
Image Source: Zacks Investment Research
Buy, Sell, or Hold – CAVA
For existing investors, CAVA's rising customer traffic, robust same-store sales growth and expanding footprint make a compelling case to hold the stock.
For new investors, the current premium valuation — evident in the elevated forward 12-month price-to-sales ratio — suggests that the stock may be priced too high for an optimal entry point. Food, beverage and packaging costs are expected to rise — as a percentage of revenues — for the rest of the year, primarily due to the steak launch. Despite the benefits of the Connected Kitchen initiatives, the integration of AI and technology is still in the early stages. It will require time and investment to realize the potential efficiencies fully. While restaurant-level profit margins improved, the outlook suggests potential seasonal impacts, especially in fourth-quarter 2024, which could lower margins by about 200 basis points.
While CAVA's growth outlook remains positive, the stock's recent surge could limit upside potential in the short term. Waiting for a pullback or more attractive valuation could provide a better opportunity to capitalize on the company's long-term prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.