CAVA Group’s Volatile Slide: What’s Behind the 5.5% Drop and What’s Next?

Summary
• CAVA’s stock plunges 5.5% intraday to $84.07 amid mixed analyst ratings and sector headwinds.
• Earnings report highlights 28.2% revenue growth but warns of margin pressures from steak price hikes.
• Institutional investors like KeyBanc and Morgan Stanley revise price targets, signaling caution.
• CAVA’s 52W low of $70 looms as critical support amid heightened volatility.
CAVA Group, the Mediterranean fast-casual chain, is trading at its lowest level since early July as a confluence of analyst skepticism, sector competition, and operational challenges drive a sharp selloff. With the stock down 5.69% year-to-date and a 5.5% intraday drop, investors are scrambling to decipher whether this is a buying opportunity or a warning sign. The price action reflects a tug-of-war between bullish expansion metrics and bearish margin concerns.

Analyst Revisions and Sector Dynamics Fuel CAVA’s Sharp Decline
The selloff stems from a combination of bearish analyst updates and sector-specific pressures. Morgan Stanley cut its price target to $107 from $115, while KeyBanc’s $100 'overweight' rating contrasts with Barclays’ $90 'equal weight’ downgrade. These mixed signals highlight investor uncertainty. Meanwhile, CAVA’s Q1 earnings report—though showing 34.6% EBITDA growth—revealed a 110-basis-point rise in food costs due to steak price surges, eroding margins. Sector-wide, fast-casual chains like Chipotle (CMG) are also under pressure, with CMG down 1.4%, reflecting broader challenges in balancing value promotions and profitability.

Restaurant Sector Volatility: CAVA vs. Chipotle’s Diverging Trajectories
While CAVA’s 5.5% decline outpaces Chipotle’s 1.4% drop, both stocks face sector headwinds. CAVA’s struggles with food costs and expansion expenses (pre-opening costs up 100% YoY) contrast with Chipotle’s focus on menu innovation and digital growth. However, CAVA’s 18.3% YoY store expansion and 10.8% same-restaurant sales growth highlight its aggressive growth strategy, which now clashes with margin pressures. Investors are watching whether CAVA can replicate Chipotle’s disciplined scaling playbook.

Options Playbook: Leveraging CAVA’s Volatility with Strategic Contracts
• 200-day average: 108.33 (well above current price)
• RSI: 74.19 (overbought, suggesting potential reversal)
• MACD: 2.39 (bullish), Signal Line: 1.30 (neutral)
• Bollinger Bands: Upper 95.69, Middle 82.53, Lower 69.36 (price near lower band)
CAVA’s technicals paint a mixed picture: overbought RSI and a 200-day average far above current levels suggest potential for a rebound, while the stock’s proximity to the lower Bollinger band hints at bearish momentum. Key levels to watch include the 83.71 intraday low (lower band) and the 89.02 high. The options market reflects this volatility, with the CAVA20250725P80 and CAVA20250725P88 put options standing out for their liquidity and leverage:
• CAVA20250725P80: Put, Strike 80, Expiry 7/25, IV 49.45%, Leverage 79.81%, Delta -0.257, Theta -0.0045, Gamma 0.0496, Turnover 3,677
- IV (49.45%): High volatility premium; attractive for bearish bets
- Leverage (79.81%): Amplifies downside potential
- Delta (-0.257): Moderate sensitivity to price drops
- Gamma (0.0496): Strong responsiveness to price swings
- Turnover (3,677): High liquidity ensures ease of entry/exit
- Payoff at 5% downside (79.86): Max(0, 80 - 79.86) = $0.14 per contract; 337.50% implied return
- Why it stands out: Balances leverage and liquidity, ideal for short-term bearish positioning.
• CAVA20250725P88: Put, Strike 88, Expiry 7/25, IV 48.86%, Leverage 78.32%, Delta -0.2795, Theta -0.2309, Gamma 0.0523, Turnover 15,676
- IV (48.86%): Slightly lower than CAVA20250725P80 but still robust
- Leverage (78.32%): Strong downside amplification
- Delta (-0.2795): Higher sensitivity to price drops than the 80-strike put
- Gamma (0.0523): Greater responsiveness to price swings than the 80-strike put
- Turnover (15,676): Exceptional liquidity for a strike near current price
- Payoff at 5% downside (79.86): Max(0, 88 - 79.86) = $8.14 per contract; 68.99% implied return
- Why it stands out: High liquidity and gamma make it ideal for aggressive short-term bearish bets. If CAVA breaks below 83.71, these puts could offer asymmetric returns.

Backtest CAVA Group Stock Performance
CAVA Group, Inc. (NYSE:CAVA) has shown resilience and is poised for potential growth despite a recent -6% intraday plunge.1. Rapid Recovery: Following the -6% drop, CAVA rebounded strongly, gaining 11.8% over the next five trading sessions. This swift recovery suggests investor confidence remains high, and the stock is regaining momentum.2. Positive Industry Outperformance: CAVA's performance exceeded industry peers like Chipotle Mexican Grill, Inc. CMG, Brinker International, Inc. EAT, and Wingstop Inc. WING during this period. This indicates that CAVA is not only recovering from its own volatility but is also outshining competitors in the fast-casual segment.3. Strong Fundamentals: CAVA's same-restaurant sales increased by 10.8% in Q1 2025, driven by a 7.5% rise in guest traffic. The company's strategic pricing adjustments and focus on operational efficiency are evident, which are likely contributing to its positive trajectory.4. Valuation and Growth Prospects: Despite recent stock volatility, CAVA's valuation remains a concern, with the stock trading at a premium 115 times estimated earnings per share for 2026. However, its strong unit economics and expansion plans offer potential for sustainable earnings growth.5. Analyst Confidence: KeyBanc's "Overweight" rating with a price target of $100 reflects optimism about CAVA's growth potential, particularly in the Mediterranean fast-casual segment. This suggests that the recent stock dip may present a buying opportunity for investors looking for long-term growth.In conclusion, while CAVA experienced a significant intraday plunge, its subsequent performance indicates a strong recovery, outperformance within the industry, and continued positive fundamentals. The company's valuation remains a point of consideration, but its growth prospects and analyst confidence suggest it could be an attractive investment for those with a moderate to long-term horizon.

CAVA’s Crossroads: Rebound or Reassessment?
The selloff reflects a critical juncture for CAVA: Will the stock rebound on its 10.8% same-restaurant sales growth and 64–68 new store openings, or will margin pressures and sector headwinds force a reassessment? Investors should monitor the 83.71 intraday low and the 74.35–74.71 30D support range. For context, sector leader Chipotle (CMG) is down 1.4%, signaling broader challenges. Aggressive bulls may consider the CAVA20250725P80 put into a bounce above $89.02, while bears should watch for a breakdown below $83.71 to confirm a deeper decline.