Pondering Over Cava's High Price Tag? This Graph Could Convince You Otherwise.
Cava Group's stock might've taken a dip recently, but its unstoppable growth in 2024 is reminiscent of Chipotle Mexican Grill's early days. The Mediterranean fast-casual chain's average unit volumes are already approaching Chipotle levels, and its success is catching the attention of analysts worldwide.
Initially, Cava's stock seemed overvalued after its third-quarter earnings report. Trading at a price-to-earnings ratio above 200, it was easy to worry about its affordability. But upon closer inspection, Cava isn't as expensive as you'd think. Analysts' earnings estimates for Cava have consistently been revised higher this year, tripling from their initial forecasts.
Looking ahead to 2025, analysts predict Cava's earnings per share (EPS) will rise from $0.50 to $0.64. With comparable sales growth of 18.1% in the third quarter and plans to open new restaurants, topping that forecast is a realistic possibility.
Moreover, Cava's small size might trick you into believing it's overpriced. While it currently operates at 350 locations, its growth ambitions are ambitious: it aims to have 1,000 locations open by the end of the decade.
If Cava can grow beyond this number, its profit margins are likely to expand as its operations scale up. Given its impressive results, its share price might not be as sky-high as you'd expect.
So, the next time you look at Cava's stock, take a step back and consider the chain's growth potential. Then, perhaps, you'll see just how much room there is for this fast-casual star to shine.
Insight: As of Q3 2024, Cava Group operates around 350 locations, with analysts predicting a significant growth of up to 1,000 locations by the end of the decade. This growth potential, coupled with the chain's impressive comparable sales growth of 18.1% in the third quarter and strong earnings forecasts, suggests that Cava Group is not overpriced and has plenty of room for growth. Analysts predict a 22% increase in earnings for Cava Group over the next 12 months, with Chipotle Mexican Grill showing comparable earnings growth and higher revenues and EPS for the same period. However, Cava Group's valuation remains high with a price-to-sales multiple of 14.8.
Given Cava Group's ambitious expansion plans, aiming to reach 1,000 locations by the decade's end, smart investors might see opportunities in finance and investing in its stock. If successful, Cava's increased scale could boost its profit margins and potentially reduce its perceived overvaluation.
