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Is CAVA Stock's 13.49X P/S Still Worth it? Buy, Sell or Hold?
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CAVA Group, Inc.‘s (CAVA - Free Report) shares are trading at a substantial premium, far outpacing the Zacks Retail-Restaurant industry. With a forward 12-month Price-to-Sales ratio of 13.49x, CAVA dwarfs the Zacks Retail-Restaurant industry’s average of 3.95x and the broader Retail-Wholesale sector’s 1.42x.
CAVA’s shares have surged 295.7% in the past year compared with the industry’s appreciation of 10.4% and the S&P 500’s 31.2% increase. CAVA has outpaced other industry players like Chipotle Mexican Grill, Inc. (CMG - Free Report) , up 56.7%, Domino's Pizza, Inc. (DPZ - Free Report) , up 9.8%, and Restaurant Brands International Inc. (QSR - Free Report) , up 4.8%, in the past year.
Stock Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for CAVA. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in CAVA's financial health and prospects.
50-Day Moving Averages
Image Source: Zacks Investment Research
Estimate Revision Favoring CAVA
Reflecting the positive sentiment around CAVA, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have raised their estimates for the current and the next fiscal by 26.5% to 43 cents and by 10.9% to 51 cents, respectively. These estimates indicate year-over-year growth rates of 104.8% and 18.9%, respectively.
Image Source: Zacks Investment Research
The company’s steep valuation underscores investors' high expectations for the brand, positioning CAVA as a growth outlier in the competitive restaurant landscape. However, the stark contrast in valuation might prompt caution among those weighing the risks versus potential rewards at its current price point. Let’s delve deeper and find out factors aiding the company’s growth.
Robust Expansion Efforts
The company’s expansion effort is aiding its performance. CAVA opened 18 net new restaurants in second-quarter fiscal 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. It is planning to open 54-57 net new restaurants in the fiscal 2024.
Robust Same Store Sales Growth
CAVA Group is defying industry trends with impressive top-line performance, highlighted by a strong same-store sales growth of 14.4% in second-quarter fiscal 2024 — this includes a notable 9.5% rise in customer traffic. CAVA’s updated guidance for fiscal 2024 suggests that double-digit same-store sales growth is expected in the second half of the year, signaling continued strength in traffic.
CAVA's focus on quality, relevance, convenience and experience appeals to a broad demographic, helping it attract trade-down and trade-up customers. Its ability to offer Mediterranean cuisine at prices competitive with fast food resonates with consumers seeking healthy and flavorful options.
Strategic Pillars
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, it is committed to maintaining high standards of restaurant operations, ensuring excellence at every location and during every shift. Fourth, it emphasizes the importance of operating as a cohesive, high-performing team.
Robust Margin Growth
Despite many restaurant operators struggling with margins in the current environment, CAVA stands out by maintaining healthy margins. This performance highlights CAVA’s operational efficiency and its ability to navigate industry challenges better than many competitors. Its restaurant-level profit margin rose to 26.5% of revenues in second-quarter fiscal 2024, up from 26.1% in the prior year. The uptick was driven by higher sales leverage, despite increases in wage investments and the launch of steak. In the fiscal 2024, the company expects restaurant-level profit margin in the range of 24.2-24.7%.
Conclusion
CAVA is trading at a significant premium, with a Price-to-Sales ratio, far exceeding the industry average. Despite the high valuation, CAVA's impressive stock performance is supported by strong expansion efforts, including new market entries and double-digit same-store sales growth. The company's ability to maintain healthy margins in a challenging environment, alongside increasing customer traffic and upward earnings revisions, reflects investor confidence. Its steep valuation may raise caution, as the Zacks Rank #3 (Hold) company’s future performance hinges on continued robust growth and execution. Waiting for a pullback or more attractive valuation could provide a better opportunity for new investors to capitalize on its long-term prospects.
Image: Bigstock
Is CAVA Stock's 13.49X P/S Still Worth it? Buy, Sell or Hold?
CAVA Group, Inc.‘s (CAVA - Free Report) shares are trading at a substantial premium, far outpacing the Zacks Retail-Restaurant industry. With a forward 12-month Price-to-Sales ratio of 13.49x, CAVA dwarfs the Zacks Retail-Restaurant industry’s average of 3.95x and the broader Retail-Wholesale sector’s 1.42x.
CAVA’s shares have surged 295.7% in the past year compared with the industry’s appreciation of 10.4% and the S&P 500’s 31.2% increase. CAVA has outpaced other industry players like Chipotle Mexican Grill, Inc. (CMG - Free Report) , up 56.7%, Domino's Pizza, Inc. (DPZ - Free Report) , up 9.8%, and Restaurant Brands International Inc. (QSR - Free Report) , up 4.8%, in the past year.
Stock Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for CAVA. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in CAVA's financial health and prospects.
50-Day Moving Averages
Image Source: Zacks Investment Research
Estimate Revision Favoring CAVA
Reflecting the positive sentiment around CAVA, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have raised their estimates for the current and the next fiscal by 26.5% to 43 cents and by 10.9% to 51 cents, respectively. These estimates indicate year-over-year growth rates of 104.8% and 18.9%, respectively.
Image Source: Zacks Investment Research
The company’s steep valuation underscores investors' high expectations for the brand, positioning CAVA as a growth outlier in the competitive restaurant landscape. However, the stark contrast in valuation might prompt caution among those weighing the risks versus potential rewards at its current price point. Let’s delve deeper and find out factors aiding the company’s growth.
Robust Expansion Efforts
The company’s expansion effort is aiding its performance. CAVA opened 18 net new restaurants in second-quarter fiscal 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. It is planning to open 54-57 net new restaurants in the fiscal 2024.
Robust Same Store Sales Growth
CAVA Group is defying industry trends with impressive top-line performance, highlighted by a strong same-store sales growth of 14.4% in second-quarter fiscal 2024 — this includes a notable 9.5% rise in customer traffic. CAVA’s updated guidance for fiscal 2024 suggests that double-digit same-store sales growth is expected in the second half of the year, signaling continued strength in traffic.
CAVA's focus on quality, relevance, convenience and experience appeals to a broad demographic, helping it attract trade-down and trade-up customers. Its ability to offer Mediterranean cuisine at prices competitive with fast food resonates with consumers seeking healthy and flavorful options.
Strategic Pillars
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, it is committed to maintaining high standards of restaurant operations, ensuring excellence at every location and during every shift. Fourth, it emphasizes the importance of operating as a cohesive, high-performing team.
Robust Margin Growth
Despite many restaurant operators struggling with margins in the current environment, CAVA stands out by maintaining healthy margins. This performance highlights CAVA’s operational efficiency and its ability to navigate industry challenges better than many competitors. Its restaurant-level profit margin rose to 26.5% of revenues in second-quarter fiscal 2024, up from 26.1% in the prior year. The uptick was driven by higher sales leverage, despite increases in wage investments and the launch of steak. In the fiscal 2024, the company expects restaurant-level profit margin in the range of 24.2-24.7%.
Conclusion
CAVA is trading at a significant premium, with a Price-to-Sales ratio, far exceeding the industry average. Despite the high valuation, CAVA's impressive stock performance is supported by strong expansion efforts, including new market entries and double-digit same-store sales growth. The company's ability to maintain healthy margins in a challenging environment, alongside increasing customer traffic and upward earnings revisions, reflects investor confidence. Its steep valuation may raise caution, as the Zacks Rank #3 (Hold) company’s future performance hinges on continued robust growth and execution. Waiting for a pullback or more attractive valuation could provide a better opportunity for new investors to capitalize on its long-term prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.