Sales at restaurant chain Cava (CAVA -4.66%) are booming, and Argus analyst Christine Dooley expects the fast-casual winner to keep growing for years to come. Dooley upgraded Cava to "buy" on Wednesday and assigned a $70 price target to the stock. That price target represents potential upside of about 16%.
Rapid-fire growth
Cava enjoyed same-restaurant sales growth of 11.4% in the fourth quarter of 2023. This helped fuel overall revenue growth of 36%, while revenue at Cava locations soared 53% (conversions of Zoe's Kitchen locations were responsible for the discrepancy).
The company opened 19 new locations in the fourth quarter, bringing its total restaurant count to 309. For 2024, the company expects to increase its restaurant count by 48 to 52 locations while generating same-restaurant sales growth between 3% and 5%.
Dooley's buy thesis ultimately boils down to valuation. The analyst is optimistic about Cava's ability to continue growing in the long run, and she sees the stock as cheap relative to fast-casual giant Chipotle.
Is Cava stock a buy?
While Cava stock may be less pricey than Chipotle, that's not saying much. Based on analysts' estimates for revenue and earnings in 2024, Cava trades for nearly 8 times sales and 260 times earnings.
Is Cava the next Chipotle? For the valuation to make any sense, it almost has to be. The problem with making this assumption is there hasn't been a true Chipotle successor since the industry pioneer was founded more than 30 years ago. There have been new fast-casual chains that managed to produce periods of explosive growth, but none have sustained it for long.
Perhaps Cava is different, but investors shouldn't discount the possibility the company hits a wall well before it gets anywhere close to Chipotle's size.
