After the pullback, an investment case has emerged for Cava Group stock.
Given the all-time highs of the stock market indexes, one may not expect to find many desirable stocks trading at a significant discount. After all, individual stocks drive those indexes, meaning many of the most prominent market movers also trade at record highs.
The good news for bargain hunters is that some stocks are still far from their record highs. One particularly compelling opportunity is in Cava Group (CAVA -4.24%) stock, which is down by 62% following a post-IPO run-up. Amid this considerable discount, now might be an excellent time to buy.
Here’s why.
Image source: Cava Group.
Why Cava Group is not (exactly) Chipotle
In many respects, Cava looks like the Mediterranean food version of Chipotle Mexican Grill. Both are fast-casual restaurants that employ a sort of assembly line approach to preparing quick meals. Additionally, both emphasize natural ingredients, something that likely appeals to an increasingly health-conscious consumer.
However, that is where the similarities end. As previously mentioned, Cava is a Mediterranean food restaurant, a food type that lacks the popular appeal of the Mexican food market. Still, Mediterranean food has become increasingly in demand as it builds a reputation as a healthy, delicious food type, and Cava is arguably in the best position to lead this category.
Prospective shareholders can also purchase Cava stock while its footprint is relatively small. As of the end of the second quarter of fiscal 2025 (ended July 13), the company claimed 398 restaurants. Even though the number of restaurants increased by 17% over the last year, it is slightly more than one-tenth of Chipotle’s current size.
Investors should also note that Cava has announced its 400th location prior to the report’s release, placing it well on track to grow to 1,000 restaurants by 2032.
Cava Group by the numbers
Amid such growth, it likely will not surprise investors that in the first 28 weeks of fiscal 2025, Cava generated more than $612 million in revenue, a 24% increase compared to the same period in fiscal 2024. That included a 6.6% increase in same-restaurant sales during that time frame.
The rest of the income statement offered mixed news on Cava’s performance. Operating expense growth kept pace with revenue, leading to a 26% restaurant-level profit margin. Nonetheless, it still grew its net income during that period by 31%, taking it to more than $44 million.
Looking to the company’s forecast for the rest of the fiscal year, same-restaurant sales growth may fall to the 4% to 6% range, and a forecast restaurant-level profit margin between 24.8% and 25.2% could also mean a modest reduction.
Still, Cava reported that it is on track to add between 68 and 70 new restaurants over the next year, another 17% yearly expansion if that forecast holds. Also, Cava has beaten analyst estimates in each of the last four quarters, so it is probably premature to predict a slowdown in growth. Additionally, given the aforementioned 62% pullback in the stock price, it is likely that any concerns about the company are already priced into the stock.
That decline still makes Cava a relatively expensive stock, though its value proposition has dramatically improved. Today, it trades at a P/E ratio of 55, making it more expensive than Chipotle stock at 37 times earnings but well above the S&P 500 average of 31.
Still, investors should also bear in mind that Cava’s earnings multiple is consistent with Chipotle’s during its growth phase. Thus, prospective shareholders may overlook a somewhat elevated P/E ratio as they capitalize on a discounted stock price.
Investing in Cava Group stock
Under current conditions, investors should consider buying Cava Group stock at this 62% discount.
Admittedly, Cava is still a small fraction of Chipotle’s size, and its Mediterranean cuisine is not currently as popular as the Mexican food served by Chipotle.
Nonetheless, the similarities to Chipotle and its rapid growth in an increasingly popular food type bode well for the consumer discretionary stock. Moreover, the expansion of its footprint and rising same-restaurant sales speaks to Cava’s growing popularity. Such trends should benefit investors as Cava continues on its path to operating 1,000 restaurants.
Will Healy has positions in Cava Group. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and recommends the following options: short December 2025 $45 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.