Shares of Mediterranean restaurant chain Cava (CAVA 10.50%) stock gained 25% in February according to data provided by S&P Global Market Intelligence. It reported strong fourth-quarter results and investors are excited about its potential.

Looks like the real deal

Cava took the market by storm when it debuted as one of the only exciting initial public offerings (IPO) in a dry year last June. Investors have been following its trajectory to see if it can really make it as a popular and successful fast-casual restaurant chain.

So far, so good. Cava has surprised naysayers by reporting consistent progress, and investors were pleased with the 2023 fourth-quarter and full-year report. Revenue increased 60% year over year in 2023, with an 18% increase in comparable sales. Cava reported a $13.3 million net profit after a $59 million loss last year, and restaurant-level profit margin was 24.8%, 4.5 points higher than last year. Average unit volume increased from $2.4 million last year to $2.6 million this year, and it opened 72 new restaurants in 2023.

As it racks up more positive quarterly financial reports, investors see real potential for Cava to become a huge restaurant chain, following in the footsteps of fast-casual pioneer Chipotle Mexican Grill. Chipotle has been a massive market-beater, and finding the next big winner could be lucrative for investors.

Cava operates 236 restaurants as of the beginning of the year, which is still a fairly small sample size. One of its goals this year is to build infrastructure to invest in scaling, and it's experimenting with new dishes as well as expanding its loyalty program.

Is now the right time to buy Cava stock?

Whenever a stock takes off, investors have to balance risk and expectations as well as potential and valuation. Cava shows great promise, but it's young and small. It's demonstrating that its concept works across several U.S. markets, but it's still in limited regions. It's growing fast, but its stock trades at a price-to-sales ratio of more than 8. That could be reasonable for a high-growth stock, but it would be expensive for a high-risk stock.

Management is guiding for growth to slow in 2024. It's expecting comparable sales to increase about 4% year over year, with restaurant-level profit margin of 23%. It's planning to open about 50 new shops. It would have to exceed these modest expectations to elicit strong stock movement this year.

Long-term, this could be a great stock to own, but only risk-tolerant investors should buy in right now.