In July, Mediterranean restaurant chain Cava Group (CAVA 0.67%) went public and within days soared to a $5 billion valuation. Two weeks later, while Cava was still basking in the limelight, another promising restaurant chain went public with little fanfare: Korean BBQ concept GEN Restaurant Group (GENK 4.36%).

Overshadowed by headline-grabbing Cava, GEN Restaurant stock has languished somewhat since going public, and shares now trade below their offering price of $12. But there's a lot to like about this restaurant company. And maybe that's why it has more upside than Cava, at least according to Wall Street.

Meet GEN Restaurant Group

With Korean BBQ, diners cook Korean-style cuts of meat on their own at their tables, which can make for a fun, differentiated experience. As of the second quarter of 2023, GEN Restaurant Group had only 34 locations, all of which were company-owned. But these restaurant locations generate high revenue and profits.

For restaurant stocks, average annual sales per location are called average unit volume (AUV). Generally speaking, the higher the AUV, the higher the company's profitability. Take Cava, for example. In the second quarter of 2023, it had AUV of $2.6 million, which led to a restaurant-level profit margin of 26%. These are top-tier restaurant numbers.

In 2022, GEN Restaurant locations that had been open for a full 18 months had annualized AUV of $5.9 million, which is stellar. These high volumes led to a 20.4% restaurant-level profit margin in the second quarter for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Small restaurant chains usually have net losses even if they're profitable at the restaurant level. That's because corporate expenses are necessary to run and grow a chain. But GEN Restaurant reported a second-quarter net income of $4.5 million, which was an impressive 9.6% margin.

As far as GEN Restaurant's management is concerned, it's a first-mover for Korean BBQ in the U.S. It has only 34 locations today, but it believes it can have 250 in the long term. And management is targeting $5 million in AUV for new locations. If that works out, it should continue to support the company's strong profitability.

Assuming restaurant-level profitability continues, new locations will have a fast payback period for GEN Restaurant Group -- management is targeting a payback in 2.5 years. And if the numbers are ultimately anywhere close to these projections, this company could become a real cash cow within the next several years.

More than 100% upside?

According to TipRanks, there are only three professional analysts who cover GEN Restaurant stock, and all three believe the stock is a buy with an average price target of $25 per share, more than 100% higher than where it trades today. That's more bullish than the 58% upside for Cava stock, according to the nine analysts covering it.

Could GEN Restaurant stock really hit $25 per share? Well, if the company opens many new profitable restaurant locations in coming years, then, yes, it's very possible. But there are some risks to be aware of.

The first risk should be the most obvious: GEN Restaurant likely has little competitive advantage. Management believes Korean BBQ will be a big trend in food. If true, I'd expect competition to heat up, especially with profit margins as fat as GEN Restaurant's are. And with only 34 locations today, it's doubtful that GEN has any real brand awareness or loyalty.

Another risk is less obvious: GEN Restaurant has a complex stock situation. Companies commonly have Class A shares and Class B shares, which come with different voting rights. But GEN Restaurant only offered 3.6 million Class A shares in its initial public offering (IPO). By comparison, there are more than 28.1 million Class B shares. In other words, insiders own most of the outstanding shares and virtually all of the voting rights.

Insider ownership can be great because financial incentives are aligned with those of common-stock holders. But in the case of GEN Restaurant, if insiders sell just a fraction of their positions, it would put a lot of downward pressure on the stock.

Given that this is a newly public company, it might be prudent for investors to wait and see if management protects shareholder value or dilutes it. But that's generally a good idea with any IPO stock.

Even though questions remain, one thing is certain: If the stock eventually doubles in value, it won't be a straight line up. Stocks almost always swing from price extremes based on how investors are feeling, and it's likely that Wall Street will revise its price targets up and down as well.

This is why long-term investors should pay attention to business fundamentals for GEN Restaurant Group more than they pay attention to Wall Street's price targets. If the business succeeds, the stock will eventually follow.