How to Invest in Cava

Since becoming a public company, Cava Group (CAVA 10.5%) has been hotter than its fiery broccoli and spicy falafel. The Mediterranean restaurant chain completed its initial public offering (IPO) in mid-June 2023 when the market was starving for new IPOs.

The IPO was priced at $22 per share, above its expected range of $19 to $20 per share. Investors craving something new gobbled up shares, driving them up more than 100% on their first trading day and making it one of the tastiest IPOs of the year.

Rapid growth is a big driver of the fast-casual restaurant stock's red-hot start. Cava has opened 76 net new locations over the past year, increasing its footprint to 290 locations, including former Zoës Kitchens converted into Cava's. The company expects to continue growing briskly, with plans to open 70 to 73 net new restaurants in 2023.

In addition to growing its location count, Cava's same-store sales are growing quickly, up 14.1% in its 2023 fiscal third quarter. It's satisfying the growing craving for Mediterranean food while enticing return visits with new culinary innovations.

And Cava Group has grand ambitions. It's building the organization and infrastructure to support a restaurant group that can generate more than $1 billion in annual revenue. Its growth potential might have investors salivating to invest in its stock.

You could also be among the many hungry customers helping drive the Mediterranean fast-casual restaurant brand's rapidly growing sales, further fueling your craving for Cava shares. Here's a step-by-step guide on how to buy shares of the restaurant stock and some factors to consider before adding Cava Group to your portfolio.

How to buy

How to buy Cava stock

You'll need to take a few steps before buying shares in Cava (or any other stock, for that matter). Here's a step-by-step guide to adding the Mediterranean fast-casual restaurant brand to your portfolio.

Step 1: Open a brokerage account

You'll want to open and fund a brokerage account before buying shares of any stock. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money.

The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. You don't have to get there on the first day. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to ensure you have a solid grasp on whether the company can grow value for its shareholders over the long term. Continue reading to learn more about some crucial factors to consider before investing in Cava's stock.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (CAVA for Cava Group).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.

Once you complete the order page, click to submit your trade and become a Cava Group shareholder.

Should I invest?

Should I invest in Cava?

Doing research is essential before buying any stock. It could cause you to lose your appetite for the shares, or it might reaffirm your belief that it's a tasty investment opportunity. Here are some reasons you might want to buy shares of Cava Group:

• You're a big fan of the company's food.
• You're interested in investing in recent IPOs with high growth potential.
• You understand that Cava Group's stock could be very volatile.
• You don't need dividend income from your investment.
• Owning shares of the restaurant operator would help you build a more diversified portfolio.
• You believe the company can continue opening profitable new locations while rapidly growing sales at existing stores.
• You believe the company will grow into its lofty valuation.
• You like to invest in founder-led companies.

On the other hand, here are some reasons you might opt against investing in Cava stock:

• You aren't a fan of Mediterranean food and don't like Cava's menu items.
• You're nearing retirement or already retired and must earn income from your investments.
• You already own some restaurant stocks and adding Cava would give you outsize exposure to the sector.
• You're growing more concerned about the economy and worry a recession could affect Cava's sales and growth potential.
• You prefer lower-risk investments than a hot IPO like Cava.
• You're concerned about Cava's spicy valuation.

Profitability

Is Cava profitable?

Evaluating a company's profitability is essential to an investor's stock research process. Profit growth tends to be the primary driver of a company's stock price in the long term.

Cava Group has been solidly profitable since coming public. The company generated $6.5 million of net income on $171.1 million in revenue in its fiscal second quarter (its first quarter as a public company). Cava followed up by posting $6.8 million of net income in its fiscal third quarter on $173.8 million of revenue. That was an improvement from an $11.9 million loss in the year-ago period.

A big driver of its improving profitability is the company's growing scale. It has opened 76 net new Cava Restaurants over the past 12 months. The new locations, combined with strong same-store sales growth (14.1% year over year in the third quarter), drove a 49.5% increase in its revenue.

The company also benefitted from an improving restaurant-level profit margin, which increased from 21.7% to 25.1% over the past year. The primary drivers were its larger-scale operations, falling costs, and higher sales of premium menu items.

While Cava reported a profit in its fiscal 2023 second and third quarters, investors should keep a close eye on profitability. The company reported net losses in its first fiscal quarter of 2023 and all four quarters of its 2022 fiscal year.

Ideally, investors want to see a company consistently increase its profitability. So far, Cava is off to a good start as a public company.

Dividends

Does Cava pay a dividend?

Cava Group has yet to initiate a dividend since going public. The fast-growing restaurant group likely won't declare one soon. It's using its retained earnings to help support its expansion, including opening new locations.

ETF options

ETFs with exposure to Cava

Cava has been a publicly traded company only since June 2023, so it's not yet widely held by institutional investors, including exchange-traded funds (ETFs). However, ETFs are starting to add shares of the newly public company. According to ETF Channel, 15 ETFs held shares of the company as of late 2023.

Notable ETFs holding shares were the Vanguard Small-Cap Growth ETF (VBK 0.83%), the Vanguard Small-Cap ETF (VB 0.54%), and the Vanguard Small Cap Value ETF (VBR 0.37%). However, they had tiny allocations to the restaurant group (0.03% or less), so ETFs are probably not the best way to passively invest in Cava Group.

Another alternative is to invest in a restaurant ETF. While most still need to add the newly public Cava, they likely will buy shares of the Mediterranean fast-casual brand soon. In the meantime, owning shares of a restaurant ETF would enable investors to invest passively in some of the top publicly traded restaurant operators.

Stock splits

Will Cava stock split?

Cava Group didn't have an upcoming stock split as of late 2023. The company completed its IPO earlier in 2023 at $22 per share. While shares rallied after its IPO, they still traded at an accessible level, roughly $40 per share in late 2023, for most investors. So, it seems unlikely that the restaurant group will split its stock anytime soon.

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The bottom line on Cava

Cava burst onto the scene in 2023 as one of the hottest IPOs. The Mediterranean fast-casual restaurant brand is growing rapidly. That could make it a delicious opportunity for some investors since its continued growth could drive its stock price even higher.

However, Cava might not be the right investment for everyone. Shares could be volatile, and the stock doesn't currently pay dividends. Investors need to do their research and make sure they want to own Cava before buying shares.

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