Cava Group (CAVA +0.59%) stock caught investor attention from the time of its initial public offering (IPO) in the middle of 2023, and its stock has soared since. At the time of this writing, it's up 92% since its first-day closing price.
However, along with the price rise, its valuation became astronomical. Cava stock is down 44% from its highs, and it's starting to look more reasonably priced. If you're considering taking a position at these levels, here are three things you should know before you buy.
1. It has a great track record, but a short one
Investors have been loving Cava because if it continues to report similar performance to what it's demonstrating now, it has incredible long-term potential.
In the 2024 fourth quarter, revenue increased 28% year over year to $225 million. It currently has 367 locations set up in several states after opening 58 in 2024, and it's planning to open about 64 more in 2025. That's high growth for a tiny operation, and it bodes well for its future as it continues to open restaurants across the U.S.
NYSE: CAVA
Key Data Points
However, that's also a small subset of restaurants, and Cava isn't large enough to be confident that it can continue to keep it up. The market has high hopes that it can be the next Chipotle Mexican Grill, but running 3,500 stores, which Chipotle has today, is different from running 367.
It also has competition that might challenge its expansion prospects. Chipotle recently invested in a competing fast-casual restaurant chain with a Mediterranean feel called Brassica, and Chipotle itself continues to be the reigning fast-casual champion, with its own future opportunity.
That doesn't necessitate pessimism, but it does necessitate careful thought and analysis before you press the buy button.
2. Comps growth might start to come down
One metric that has been outstanding for Cava is its comparable sales (comps) growth. Comps growth indicates that customers are coming back for more, spending more money, or both, which is a great sign of long-term viability. It's also important in generating profitability and margin expansion, because store fixed costs are spread among more sales per location.
Comps increased a super-high 21% over the previous year in the fourth quarter and 13% for the full year. However, investors were disappointed with the 2025 outlook, which guides for comps to grow only 7%.
That's not too bad, but it is a staggering slowdown. Some of the past comps growth came from price increases, and management said that after a 1.7% menu "price adjustment" as of January, it's not planning to raise prices again in 2025.
If Cava was able to raise prices successfully over the past two years and still keep customers coming back, that's still a good sign. But with lower comps growth, it isn't surprising that Cava stock fell, because it can't carry such a high valuation without correspondingly high growth.
3. It's still expensive
Even at the new, lower price, Cava stock trades at a forward, 1-year price-to-earnings (P/E) ratio of 116. While that's more reasonable than the above-240 forward P/E it was sporting before, it's far from a bargain.
There's still a lot of growth and confidence built into that price, and investors are expecting success. If it doesn't come through, the price will continue to drop, like it did after the disappointing 2025 guidance.
Cava looks like it has a long growth runway, and it should reward investors over many years. But it's not a stock for the risk-averse or anyone with a short time horizon, and you should only buy if you're prepared for the risks.
