Cava Stock: Can It Reach $158 as Analyst Predicts?

Cava Group (NYSE: CAVA) has been one of the hottest restaurant growth stocks in recent years, with its stock price soaring to over $170 in 2024 before pulling back late in the year. However, Argus Research analyst Christine Dooley sees the dip as a buying opportunity and recently reiterated her buy rating on the shares, along with a $158 price target. This figure represents a 37% increase from the current share price of $115. But should investors follow Dooley's recommendation and buy Cava stock?

Cava's impressive growth can be attributed to several factors. The company's Mediterranean category-defining brand and unique value proposition have broad appeal, creating what is quickly becoming the next major cultural cuisine category. This has led to increased demand and customer loyalty. Additionally, Cava is driving growth by opening more locations, with 352 restaurants as of the third quarter of 2024, and aiming to own more than 1,000 by the end of the decade. The company's same-restaurant sales were up 18% over the year-ago quarter, indicating that existing restaurants are also performing well.

Moreover, Cava's restaurant-level profit margin is 25%, which is on par with that of Chipotle Mexican Grill. This profitability, combined with the growth in revenue, has led to a significant improvement in net income, which surged from $6.8 million in Q3 2023 to $18 million in Q3 2024.

However, Cava's valuation may be a concern for some investors. The stock currently trades at a price-to-sales multiple of 14.8, which might be fair for a fast-growing software company but is quite high for a restaurant chain. Most analysts rate the stock as a "hold," suggesting that the high valuation may limit its upside potential in the near term.

Wall Street analysts can sometimes point investors toward good ideas for stocks that would be worth buying on the dip. However, in this case, it may be wise to approach Cava stock with caution. While the company's growth prospects are promising, its high valuation may make it a risky investment for the time being.

Don't miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $346,349!*

Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,229!*

Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $454,283!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of January 13, 2025

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.