Cava Stock Is Down 25% Over the Past Month. Is It Time to Buy?
AInvestFriday, Jan 10, 2025 8:20 pm ET
6min read
CAVA --


Cava Group, Inc. (NYSE: CAVA), the category-defining Mediterranean fast-casual restaurant brand, has seen its stock price decline by approximately 25% over the past month. This significant drop has raised questions among investors about whether it's time to buy CAVA shares. To answer this question, let's examine the company's recent financial performance, analyst consensus, and valuation metrics.



Financial Performance and Growth Prospects

Cava's financial performance and growth prospects have shown significant improvements in the past month. In the second quarter of fiscal 2024, CAVA Revenue grew 35.2% compared to the prior year quarter, driven by both new restaurant openings and same-restaurant sales growth. CAVA Same Restaurant Sales Growth increased from 10.5% in the first quarter to 14.4% in the second quarter, indicating that existing restaurants are performing better. Additionally, Cava has opened 18 net new restaurants in the second quarter, contributing to the increase in total CAVA Restaurants, which now stand at 341, a 22.2% increase year over year.



Cava has also raised its fiscal full-year 2024 guidance for CAVA Same Restaurant Sales Growth, CAVA Restaurant-Level Profit Margin, and Adjusted EBITDA. The company now expects CAVA Same Restaurant Sales Growth of 12.0% to 13.0%, up from the previous guidance of 8.5% to 9.5%. Similarly, the expected CAVA Restaurant-Level Profit Margin has been raised to 24.5% to 25.0% from the previous guidance of 24.2% to 24.7%. Adjusted EBITDA is now expected to be $121.0 to $126.0 million, up from the previous guidance of $109.0 to $114.0 million.

Analyst Consensus and Valuation Metrics

The current analyst consensus on CAVA's stock price is a "Buy" rating, with an average price target of $142.85, which is 24.09% higher than the current price of $114.59. This indicates that analysts expect the stock to increase in value over the next 12 months. Additionally, the average revenue growth forecast for the next 5 years is 22.43%, and the EPS growth forecast is 51.20%. These positive outlook metrics suggest that analysts are optimistic about CAVA's future performance.



However, Cava's stock price decline may be due to concerns about its valuation. With a trailing PE ratio of 249.37 and a forward PE ratio of 197.94, some investors may view the stock as overvalued, especially given the company's relatively high PEG ratio of 6.57. The high valuation multiples may have made the stock more susceptible to price declines, particularly if there are any signs of slowing growth or increased competition.

Conclusion

Despite the recent stock price decline, Cava Group's strong financial performance, analyst consensus, and growth prospects suggest that it may be an attractive investment opportunity. However, investors should carefully consider the company's valuation and potential risks before making a decision. As always, it's essential to conduct thorough research and consult with a financial advisor before investing in any stock.

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