Shares of CAVA Group, Inc. CAVA touched a new 52-week high of $135.86 on Friday. The stock pulled back to end the trading session at $135.34.
The CAVA stock has surged an impressive 68.5% over the past three months, significantly outperforming its industry peers and the broader market. The industry gained 17.3%, while the S&P 500 rose just 4.8%. CAVA's strong momentum shows the company's continued ability to fire on all cylinders.
CAVA has outpaced industry players like Chipotle Mexican Grill, Inc.’s CMG 10.9% rise, Domino's Pizza, Inc.’s DPZ 3.2% growth and Restaurant Brands International Inc.’s QSR 2.9% decline in the past three months.
Stock Price Performance
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Technical indicators suggest a continued strong performance for CAVA. The stock is trading above its 50-day moving average, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in CAVA's financial health and prospects.
50-Day Moving Average
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Factors Favoring CAVA Stock
CAVA's focus on providing high-quality, Mediterranean-inspired meals at competitive prices has resonated well with consumers. In an environment wherein traditional full-service chains and fast food have struggled with price inflation, CAVA's affordable yet high-quality offering has become more attractive.
The company has been benefiting from menu innovation. It is expanding its menu offerings with the introduction of Garlic Ranch Pita Chips — a limited-time variation of its popular pita chips. This Mediterranean-inspired snack features a blend of onion, garlic and paprika, offering a new flavor option for customers and aligning with growing consumer interest in snacking. The launch coincides with the rollout of CAVA's revamped loyalty program, which aims to enhance customer engagement.
CAVA is reintroducing its Pineapple Apple Mint juice and launching the chef-curated Steak + Harissa Bowl, further diversifying its menu with fresh, flavorful options that highlight its Mediterranean roots.
The company’s expansion efforts are aiding its performance. CAVA opened 18 restaurants in second-quarter fiscal 2024, bringing the total to 341 locations. It also expanded into new markets like Chicago, which has been its strongest new market entry. The company is progressing well on its Project Soul initiative, enhancing restaurant aesthetics and creating environments that foster human connection. It is planning to open 54-57 restaurants in the fiscal 2024.
The company continues to invest in operations, such as its "Connected Kitchen" initiative, which uses AI technology to improve efficiency. Reallocating labor hours has also led to better service, quicker operations, and improved team management.
Despite many restaurant operators struggling with margins in the current environment, CAVA stands out by maintaining healthy margins. This performance highlights CAVA’s operational efficiency and its ability to navigate industry challenges better than many competitors. Its restaurant-level profit margin rose to 26.5% of revenues in second-quarter fiscal 2024, up from 26.1% in the prior year. For fiscal 2024, the company expects a restaurant-level profit margin of 24.2-24.7%.
CAVA Trading at a Premium
The company is currently valued at a premium compared with its industry on a forward 12-month P/S basis. CAVA’s forward 12-month price-to-sales ratio stands at 14.01, significantly higher than the industry’s 4.01 and the S&P 500's 5.19. This suggests that investors may be paying a high price relative to the company's expected earnings growth.
P/S (F12M)
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Estimate Revision Favoring the Stock
Reflecting the positive sentiment around CAVA, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next fiscal years by 22.9% to 43 cents and by 10.6% to 52 cents, respectively. These estimates indicate year-over-year growth rates of 104.8% and 19.6%, respectively.
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End Notes
CAVA’s recent surge to a 52-week high reflects strong investor confidence in its prospects. The company is benefiting from menu innovation, such as the Garlic Ranch Pita Chips and Steak + Harissa Bowl, and expansion into new markets. The company's operational efficiency, healthy margins and tech-driven initiatives, such as the "Connected Kitchen," bolster its performance. Although trading at a premium, upward earnings revisions suggest continued growth, making CAVA a must-buy for long-term investors despite the current high valuation. The company currently has a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
Restaurant Brands International Inc. (QSR) : Free Stock Analysis Report
CAVA Group, Inc. (CAVA) : Free Stock Analysis Report
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