What happened
Shares of newly public restaurant company Cava Group (CAVA -0.05%) sank this week. According to data provided by S&P Global Market Intelligence, Cava stock was down 14% for the week, as of early trading on Friday morning. This is far more than the roughly 2.5% drop for the S&P 500 during this same time period.
Cava had its initial public offering (IPO) in June. As is the norm with promising companies, Cava stock absolutely soared after the IPO, jumping from its IPO price of $22 per share to as high as about $57 per share by the end of July.
However, it's also normal for enthusiasm to die down with IPO stocks, no matter how promising they are. That seems to be what's happening with Cava stock now and it's why it sank this week.
So what
The news cycle for Cava was extremely good earlier this year. The IPO filings showed that the company stacks up incredibly well with past restaurant stock winners, its debut quarterly financial report beat expectations, and management has shared its vision at conferences with investors. In fact, management even credited a boost in restaurant sales to its elevated brand awareness right now.
The news cycle is now dying down for Cava. Excitement is consequently waning and that's why the stock sank this week. It's not that things are going badly for the business, but rather that investors' emotions are coming back down to reality.
Now what
Initial excitement followed by a post-IPO slump is very common for IPO stocks and it's why many experts recommend waiting before buying shares. This doesn't detract from the merits of Cava's business. Indeed, some of its operational metrics are top-notch. And management plans to roughly quadruple its number of restaurant locations over the next nine years, which could greatly increase its profits and lead to upside with the stock.
For now though, investors need to recognize that it could still take some time for Cava stock to finally settle into a steady price as the IPO buzz wears off.
