Shares of Cava (CAVA 0.91%) have had a great run over the past year and hit an all-time high of $172 in late 2024. But in the past month alone, the stock has fallen 39% and trades near $87 as of this writing.
Piper Sandler analyst Brian Mullen recently upgraded the stock to an overweight (buy) rating while lowering his firm's price target from $142 to $115. The updated price target, which usually represents an estimate of where the stock can trade in the next 12 to 18 months, still implies upside of more than 30%.
Is Cava stock a buy?
Cava has a lot going for it that could make it a monster winner long term. It's putting up strong results with revenue increasing 33% in 2024. Besides new store openings, that strength also came from existing locations as same-restaurant sales increased 13% for the year and 21% year over year in the fourth quarter.
NYSE: CAVA
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There is clearly demand for its fast-casual concept, which serves up a Mediterranean-influenced menu. Cava's market opportunity could be huge too. It operated 367 locations in 25 states at the end of 2024, but management sees the potential to open more than 1,000 total stores by 2032.
While the business is firing on all cylinders, the stock's sell-off is most likely tied to valuation. At its peak just a few months ago, the stock traded at 320 times earnings and 19 times sales. Those are expensive valuation multiples, even for a fast-growing restaurant chain.
Cava still trades at 79 times earnings and 11 times sales as of this writing. It's worth noting that Chipotle and McDonald's -- two of the most profitable names in the industry -- have never traded above 10 times sales despite having delivered tremendous wealth for their shareholders.
Still, Cava has plenty of growth potential, and it's already delivering restaurant-level operating margins on par with the much larger Chipotle. It wouldn't be wise to buy shares of Cava based solely on Piper Sandler's near-term price target. That said, the stock is well-positioned to deliver market-beating returns long term.
