CAVA Group (CAVA) Pre-earnings Analysis
Cava Group’s investors have enjoyed a phenomenal performance over the past twelve months, seeing their shares more than triple at one point before reaching an all time high at 172.00 last November. The rally could be attributed to the company’s phenomenal financial performance, which has yielded double digit revenue growth for seven consecutive quarter. But investors are nervous about the company’s ability to maintain this same level of growth, which could be the reason behind the strong profit taking since their last earnings report.
As their earnings approach this week, investors will be eyeing any weakness is sales growth. Cava is still a young company that’s in its growth stage, so they can’t afford to step off the gas yet. With competition from Chipotle and other fast-growing “healthy” alternative restaurants, they must show that same-store sales are still growing AND that new locations are popping up. Additionally, investors want to ensure that the company is maintaining the same profit margins as they do so. Cava turned a full annual profit in 2023 and is projected to close out its final quarter of 2024 also profitable. While this report will showcase what they did in Q4, investors want to see what the company projects for 2025.
At $11.89B in market cap, CAVA is just about fairly priced, at least more fairly priced than what it was back in November. Shares have fallen more than 30% to a more reasonable price, so they’ll need to really post a hefty revenue projection to be able to take them back towards all time highs, otherwise they may flatline or have one more leg down before beginning a bounce back in the second half of this quarter.
Cava is a hot company and investors should watch what they report because they have a chance of getting into an early-days Chipotle. Even if they do drop on earnings, it may be a chance to scoop up some shares at a discounted price.
Option chain analysis:
The option’s market is currently reflecting an implied volatility reading of 165% for the February 28th expiration. This translates to about a (+/-) $15 move from the stock. Whether that’s up or down will depend on the earnings outcome.