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Cava Group stock price analysis: is this the next Chipotle?

By: Invezz

Cava Group (NASDAQ: CAVA) stock price is thriving a few months after going public. It traded at about $43 on its first trading day, then peaked to $57, and crashed to $31 as the momentum faded. Now, the stock has jumped for five straight months and is sitting near its all-time high of $69. Its market cap has jumped to more than $7 billion.

Growth accelerating amid valuation concerns

Cava Group, a leading Mediterranean restaurant chain is firing on all cylinders as demand continues surging in the United States.

The most recent financial results revealed that its revenue rose by 52% in the fourth quarter and by 60% during the year. Its Q4 revenue stood at over $175.5 million, helped by higher prices and new store additions. 

It added 72 stores in 2023, bringing the total number to 309. The management aims to have over 1,000 stores by 2032. Its revenue for the year soared to $728 million, a big increase considering that the company had $500 million in revenue in 2021. Cava Group expects to open 48 to 52 restaurants this year.

Cava Group’s growth is notable because the company has also focused on profitability. In most cases, restaurant companies showing this strong growth tends to be in the deep red. Instead, Cava had a net income of $13.3 million and EBITDA of $63 million.

Another notable thing is that Cava Group is growing this rapidly without adding debt to its balance sheet. It has zero debt and has over $332.4 million in cash and access to $75 million in an undrawn revolver.

Cava Group’s growth model mirrors that of Chipotle Mexican Grill (CMG), which has become one of the fastest-growing brands in the US. Chipotle has grown the number of locations to over 3,400 from just 704 in 2007 and 1,783 in 2014. This explains why Chipotle’s valuation has surged to over $80 billion.

Valuation is the biggest concern among investors since the company has a PE ratio of 325 and a forward multiple of 297. These numbers are concerning but can be justified by the company’s growth trajectory and balance sheet.

Remember that Chipotle has a long history of being overvalued. It now trades at a trailing PE ratio of 64.5 and a forward multiple of 54. Chipotle has a PEG ratio of 2.67, which is higher than the sector median of 1.55.

Cava Group stock price forecast

CAVA chart by TradingView

The daily chart reveals that the Cava share price has been in a strong bullish trend in the past few months. It recently crossed the crucial resistance at $58.01, the highest point on August 2nd. 

The stock has constantly remained above the 50-day moving average while the Average Directional Index (ADX) has moved above 40. The Relative Strength Index (RSI) has jumped to 70, signalling that it has a bullish momentum.

Therefore, the outlook for the Cava Group stock is bullish, with the medium-term target being at $100.

The post Cava Group stock price analysis: is this the next Chipotle? appeared first on Invezz

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