CAVA Group: Delicious Food, But The Valuation Could Give Investors Indigestion

CAVA Group (NYSE: CAVA), the fast-casual Mediterranean restaurant chain, has served up impressive growth in recent years. With 33% revenue growth in fiscal 2024, a surge in same-store sales, and a relentless expansion plan, the company’s story is undeniably appetizing. However, investors may want to take a small serving of caution: the stock’s valuation has swollen to levels that could leave even the most enthusiastic diner feeling overstuffed.

The Growth Recipe: A Strong Foundation

CAVA’s success stems from its focus on health-conscious, customizable Mediterranean fare, a trend that has resonated with consumers. In fiscal 2024, the company opened 58 new restaurants, bringing total locations to 367—a 18.8% increase—while same-store sales jumped 13.4%, driven by traffic and pricing. Its digital sales mix now accounts for nearly 36% of revenue, a testament to strong online engagement. Profitability has also improved: Adjusted EBITDA rose 71% to $126 million, and margins expanded modestly.

The company’s unit economics are particularly compelling. The average restaurant generates $2.9 million in annual revenue, with a 25% profit margin—a strong indicator of scalability. Management has also prioritized operational efficiency, overhauling labor models and rolling out a reimagined loyalty program, which should bolster customer retention.

The Digestive Challenge: A Sky-High Valuation

Despite these positives, the stock’s valuation is straining credibility. As of May 2025, CAVA trades at a trailing P/E of 87.13 and a forward P/E of 171.41, both of which are over 7 times the S&P 500’s average P/E of 23. Even within the restaurant sector, this is extreme: Chipotle (CMG), a direct competitor with 3,700 locations, trades at a forward P/E of 26.5, while the broader fast-casual segment averages 15–20x earnings.

The disconnect between valuation and fundamentals is stark. CAVA’s market cap of $11.08 billion relies heavily on outsized expectations for future growth. To justify its current price, the company must not only execute its 2025 plan—opening 62–66 new restaurants and maintaining 6%–8% same-store sales growth—but also scale margins without sacrificing expansion speed.

Risks on the Menu: Why the Indigestion?

1. Overvaluation vs. Reality: While CAVA’s 2024 net income jumped 956%, this was boosted by a $80 million tax benefit (VA Release). Excluding one-time gains, earnings growth is more muted. To sustain its valuation, the company must deliver sustained, organic profit growth.
2. Competitive Pressure: Rivals like Chipotle and Sweetgreen are entrenched in the fast-casual space, with deeper pockets and broader brand recognition. CAVA’s 1,000+ restaurant goal by 2032 hinges on maintaining differentiation in a crowded market.
3. Margin Headwinds: While restaurant margins hit 25% in 2024, management projects a slight dip to 24.8%–25.2% in 2025, reflecting rising labor and supply costs. If these pressures worsen, margins could compress further.
4. Execution Risk: Scaling from 367 to 1,000+ locations requires flawless execution. Missed openings or a slowdown in same-store sales could trigger a valuation reckoning.

The Bottom Line: A Bitter Aftertaste?

CAVA’s story is undeniably compelling: it’s a growth leader in a sector with strong consumer demand. Yet its valuation demands perfection—a 20%+ annual revenue growth rate for years—to justify the current price. Given the risks of competition, margin pressures, and execution hurdles, investors may want to wait for a pullback before diving in.

Consider this: even if CAVA meets its 2025 EBITDA target of $150–157 million, its forward P/S ratio of 7.7x (versus the sector’s 4.1x) still looks stretched. A stumble in Q1 2025 results (due May 15) or a slowdown in expansion could quickly reset expectations—and the stock price—to more reasonable levels.

For now, CAVA’s valuation is a feast best enjoyed with a side of caution. The company has mastered the recipe for growth, but investors might find themselves paying for appetizers, entrées, and dessert all at once.

Conclusion: CAVA Group’s financial performance is strong, but its valuation is a red flag. With a forward P/E of 171x, the stock is pricing in flawless execution and years of hyper-growth. While the company’s unit economics and brand appeal are undeniable, risks such as competition, margin pressures, and valuation sensitivity make this a high-risk, high-reward bet. Investors are advised to proceed with caution and await clearer evidence that CAVA’s growth can sustain its premium price tag.