CAVA Group
Cava shares have surged 75% from their August lows as strong earnings attract buyers, but is the stock still a buy at its all-time highs?
The company’s quarterly growth has been impressive, averaging 31% over the past four quarters. Net income has risen alongside revenue, reaching its highest level since the company’s IPO, with $20 million reported in the last quarter. This upward momentum has driven the stock nearly 400% above its 52-week lows, boosting its market cap to $14.34 billion.
Cava’s earnings trajectory has drawn comparisons to Chipotle in its early days, fueling the rally to record highs. Many investors, driven by a “fear of missing out” on the next big chain, are eagerly buying in. However, it remains to be seen whether Cava’s current valuation of over $14 billion is justified.
Earnings growth has been impressive, but maintaining that same growth will be the determining factor of where the stock goes next. It’s not unusual for markets to react positively to a company out of excitement around its potential (think Nvidia), but potential and reality are two different things, and not all company’s end up fulfilling their potential.
For now, Cava has met forecasts, but that only drove their expectations higher. Markets are now hungry for bigger and better numbers, enough to justify the current price. If those numbers don’t impress on the next few earnings, then the company is likely to move back to a $7-$10 billion valuation (about 30-50% lower).
Last note,
Markets are excited about Cava in the short term, and it’s currently trading at highs it’s never seen before. So despite what we believe about its fundamentals, for now the market seems to be bullish. When buying a company for a long term investment, you must believe in its fundamentals and avoid chasing short term rallies out of FOMO. Cava is too young to say that this is a “buy and forget” type company, but it is displaying the right signs of a plausible investment. This is a name to buy into slowly and watch closely as new earnings are released to make a judgement of whether or not they deserve a larger investment.