Cava Stock Is Down 25% Over the Past Month. Is It Time to Buy?

Investors are going wild Cava Group: (NYSE: CAVA) stock since it hit the market in 2023. I mean, almost literally – it’s up 174% in the last year, and its valuation is through the roof.

While Kava has a lot going for it, some investors may be waiting on the sidelines for a better entry point. Cava stock is down 25% in the last month.Let’s see why this is happening and whether or not this is the attractive entry point you’ve been waiting for.

Kava is being touted as next Chipotle Mexican Grill. Investors who missed out on Chipotle’s huge profits are instead trying their luck with Cava, which has a very similar concept: fresh, healthy, premium ingredients that can be customized into all kinds of salads, bowls and entrees. in. Cava serves Mediterranean food in a fast-casual setting, and its model of having all the ingredients prepared and ready to customize, rather than cooking fresh for each customer’s order, leads to satisfied customers , higher sales and margin expansion.

Indeed, it did. Sales rose 39% year-over-year to $6.8 million. It also benefited from strong comparable sales (comps) for the quarter % compared to the previous year. This is a great sign of customer loyalty and it suggests that Cava can repeat its success with new restaurants for many years to come.

Cava now has just 352 restaurants, but each is bringing in strong sales, and average unit volume rose from $2.7 million in the second quarter to $2.8 million in the third quarter more sales and promote the level of the restaurant operating margin higher.Restaurant-level operating profit increased 42% in the quarter, and restaurant-level operating margin was 25.6%, compared to 25.1% last year.

Cava is growing at a fairly slow but steady pace, opening 43 stores in the first nine months of 2024. As each of its stores generates strong sales, it can increase its overall revenue at this rate of store openings, and has a long stretch of future growth ahead. runway.

Those are the good points. Now get ready for the flip side.

Cava is young and faces a lot of competition, not just from Chipotle, but many chains have entered the space, including Sweetgreenand Brassica, a small Chipotle-invested chain that competes directly with Cava in Mediterranean fast-casual food.352 is a small restaurant count, and there may be many challenges to that number being a real restaurant chain competitor to make

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It is already a very expensive stock at a premium (P/E) ratio 245. That means most of the future growth can already be built into the price.

However, note that the forward price-to-earnings-growth (PEG) ratio is 0.8. A PEG ratio below 1 may suggest that the price is still cheap relative to its future earnings growth, so the market is still seeing The upside potential for Cava stock.

Wall Street is mixed on this stock. Only 44% of analysts consider it a buy, but that doesn’t speak to much confidence. The average price target is $150, which is 33% higher than today could be skewed by one analyst’s $195 price target.

The price decline appears to have started after a wave of insider selling, which could indicate that management itself sees it as a high. Restaurant stocks often move together like any industry. However, it makes sense that the price of Cava is starting to fall. It’s hard for any stock, even a young growth stock, to carry such a premium.

So where does this leave investors? Cava is doing a good job of scaling and the market may not let it go too low until investors spot an opportunity and send it back. It’s too expensive to buy even at this price, risk-tolerant investors with a long-term horizon can make a reasonable case for buying it.

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Jennifer Sybil has no positions in any of the stocks listed. The Motley Fool has positions and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Sweetgreen and recommends the following options: Short Dec 2024 $54 puts Chipotle Mexican Grill in. The Spotted Fool has a disclosure policy.

Cava shares down 25% in the past month Is it time to buy? originally published by The Motley Fool