CAVA's Explosive Growth Makes It a Must-Watch Stock

Key Points

• CAVA stock's earnings show investors why this name is the gift that keeps on giving, reporting growth across the board and better profits. 
• Wall Street analysts might have to keep boosting their valuation as financials expand.
• Management is guiding for an even better future.

There are some stocks that people tend to stay away from, and in the retail sector, restaurants don’t attract a lot of money most of the time. However, every once in a while, a new name changes this view through sheer efficiency, quality, and financial growth, making it a bad portfolio decision not to include it in a core holding.

In today’s restaurant wave, shares of CAVA Group Inc. NYSE: CAVA make it stand out for many reasons. Still, the main one is that its business model is similar enough to that of Chipotle Mexican Grill Inc. NYSE: CMG to lead it into a similar bull run that could last years into the future, but also unique enough to justify this Mediterranean food restaurant to sustain its success while competing with the leaders.

Now that the company has released its latest quarterly earnings figures, investors should track several key performance indicators (KPIs) as they build their thesis for a potential buy in one of the sector’s fastest-growing stories. They should catch it before its size becomes too big to keep pushing out the sort of growth rates that are being experienced today.

CAVA Runs Hot Everywhere

It’s not just the Harissa hot sauce that spices things up at CAVA; investors can also see their portfolios turn hot with any company that manages to disclose some of the numbers that this restaurant chain has reported inside its quarterly investor presentation.

Starting with one of the most important indicators for retail stocks, comparable sales, CAVA reported a net 10.8% growth rate over the year.

With net store count growth of 4% over the past quarter alone, the actual revenue and earnings growth would have been much higher, though still 10.8% is significantly attractive during a time when the average American consumer has become budget-conscious due to inflation pressures.

With this in mind, profits also matter, and that is where CAVA’s 25.1% gross profit margin comes into play, pushing higher from last quarter’s 22.4%.

And it seems that everyone has been doing a great job at this, judging by the reported $25.7 million in net income for the quarter, which is a near double compared to last year’s $13.9 million, something that investors would be pleased about when they saw net earnings per share (EPS) reach $0.22, also a near double from last year’s $0.12.

Has CAVA Growth Been Priced In Already?

Most investors know that where EPS growth goes, so does the stock price, but in the case of CAVA, the stock has already gone on a 25% run over the past 12 months, so the question becomes whether all of this financial growth has already been potentially priced into this rally.

The short answer is not really, as judged by the $123.4 consensus price target set by Wall Street analysts today.

This target calls for a further rally of up to 24.4% from where the stock trades today. There’s an argument that this consensus might have to be pushed out even higher.

Inside the corporate presentation, investors will see that management gave some guidance for the entire 2025 fiscal year, which included a boost to the expected earnings before interest tax depreciation and amortization (EBITDA), otherwise a proxy for net earnings, where management now sees $2 million more in earnings to push for nearly 10% more than today’s reported $25.7 million.

That double-digit growth rate in earnings should make its way through to EPS, therefore helping CAVA earn a higher valuation by Wall Street analysts, and where the additional upside for investors comes from. And now comes the subtle message markets are sending investors about CAVA stock today, hidden in its price-to-earnings (P/E) ratios.

CAVA stock trades at a 215.4x P/E, a massive premium to the retail sector’s average valuation of only 25.1x. Value investors would call this an expensive stock due for a pullback; however, seasoned market operators will remind them that the market always has a good reason to overpay for the stocks it believes can outperform the peer group and the market.

In the case of CAVA, the financials seem to speak for themselves as to why markets are so willing to pay up to have exposure to this name and its future earnings.