Cava Group (CAVA 2.06%) stock was a breakout winner last year as the market cap of the Mediterranean fast-casual restaurant chain more than doubled on blistering growth. The numbers the company is generating right now are reminiscent of Chipotle Mexican Grill, the leader and pioneer in fast casual, and Cava's average unit volumes, or average sales per restaurant, are already approaching Chipotle levels.
However, after soaring through most of 2024, Cava's stock price pulled back following the release of its third-quarter earnings report in mid-November, seemingly due to valuation concerns as its results were strong. Even after a rebound this month, the stock trades down 17% from its earlier peak.
On one level, the stock does look expensive, trading at a price-to-earnings ratio above 200, but if you take a closer look at the numbers, you might find that Cava isn't quite as expensive as you thought. As you can see from the chart below, analysts have rapidly revised their earnings estimates higher for the company, showing they've consistently underestimated it.
Data by YCharts.
Analysts' consensus forecasts for 2024's earnings tripled over the course of the year, and they could be underestimating the stock going into 2025 as well. The consensus call for 2025 is that earnings per share will rise from $0.50 to $0.64.
If Cava continues to deliver strong comparable sales growth -- comps were up 18.1% in the third quarter -- and continues to open new restaurants, it's likely to top that forecast.
However, there's another reason that Cava stock isn't as expensive as it might look. The chain is still small, with just 352 locations as of the end of the third quarter. Compare that to Chipotle's more than 3,000 locations. Cava is aiming to have more than 1,000 restaurants open by the end of the decade, but the chain could grow well beyond that over the long term.
Given its recent results, there appears to be a lot of room for growth ahead, and profit margins should expand as its operations scale up. There's more to the Cava story than a high share price.
