After Mediterranean-themed restaurant CAVA Group, Inc. (NYSE:CAVA) served up strong growth last year, investors are hoping for a second course in 2024. Shares of the fast-casual chain hit a fresh record high of $77.14 on Monday, less than a year after opening at an IPO price of $42.00. The mid-cap high-flier is up more than 70% year-to-date and is showing no sign of slowing down.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
CAVA Group is an up-and-coming restaurant operator that is based in Washington, D.C. Boldly going head-to-head with Chipotle (NYSE:CMG), it offers a variety of heart-healthy Mediterranean bowls and pitas at locations across the United States.
CAVA Group stock is currently on an impressive seven-month win streak on the backs of some strong 2023 financials. In a tough discretionary spending environment, the company grew revenue and same-restaurant sales by 60% and 18%, respectively, last year. It is not only growing by expanding its footprint but also by generating higher sales at existing locations.
In addition to producing strong top-line growth, CAVA Group is already profitable. The company has recorded profits in each of the first three quarters since going public in June 2023. It is also three-for-three in surpassing Wall Street’s earnings estimates.
I am optimistic about CAVA Group’s potential to replicate its above-industry growth, going forward. The restaurant chain has created a niche category within the fast-growing limited-service restaurant space. Its food matches consumers’ increasing demand for healthy protein, vegetables, and fruits as part of broader U.S. health and wellness trends. By the second half of this year, CAVA Group plans to have steak on the menu at all locations.
CAVA Group is poised to build off its recent success by staying in tune with customer preferences and opening many new stores.
Aggressive Store Expansion
In 2023, CAVA Group opened 72 new restaurants, a 30% increase from 2022. This was a gutsy move, considering inflation and elevated credit card rates had big impacts on American discretionary budgets. The company is doubling down on its aggressive expansion strategy. It expects to build 48 to 52 more restaurants this year to bring its total unit count to at least 357. This may only be the beginning.
CAVA Group ended 2023 with 309 restaurants across 24 U.S. states. Management believes the company is in the early stages of expansion and has the potential to top 1,000 locations by 2032. The company generally targets upper-middle-income households in highly populated urban and suburban settings. Catering to higher-earning consumers definitely played a role in last year’s outperformance, and this makes CAVA Group a relatively economy-proof restaurant stock.
The Midwest U.S. is expected to be a focus area for 2024 expansion. This plan was confirmed on April 26 when CAVA Group opened its first Chicago-area location. It marked the chain’s first step into the upper Midwest market. The Southeastern and Southwestern U.S. is where CAVA Group has its largest presence, with more than 130 locations.
Later this month, we’ll learn if the company’s growth strategy is off to a good start this year. CAVA Group is scheduled to announce 2024 first-quarter financial results after the market closes on May 28. In the fourth quarter of 2023, higher premium item orders and moderating input costs led to a surprise profit. The current consensus estimate for 2024 first-quarter EPS is $0.03.
Is CAVA Stock a Buy, According to Analysts?
Despite the stock’s strong year-to-date performance, Wall Street research firms remain mostly bullish on CAVA Group. In the past three months, the stock has received eight Buy ratings and three Hold ratings.
Last month, Argus Research analyst Christine Dooley upgraded CAVA Group from Hold to Buy. Dooley pounced on the sell-off from a 52-week high to raise her rating, saying the restaurant “has a long runway to growth.”
Also last month, Wedbush analyst Nick Setyan kept a Buy rating on CAVA Group. Setyan similarly thinks the company is well-positioned for long-term growth driven by store expansion, menu innovation, digital initiatives, and a revamped loyalty program. The analyst set a Street-high $74.00 price target on CAVA.
What Is the Consensus Price Target for CAVA Stock?
CAVA Group shares have already exceeded Wall Street’s highest price target of $74.00. Meanwhile, the latest CAVA stock consensus price target is $63.82, which implies 13.9% downside from current levels. This could mean CAVA is due for a pullback. On the other hand, another strong earnings report could cause analysts to boost their price targets.
The Bottom Line on CAVA Stock
CAVA Group shares have more than doubled from their October 2023 low due to better-than-expected earnings releases and a bright long-term growth outlook. As the company’s aggressive expansion story plays out, growth metrics could continue to impress. The stock appears overheated in the near term, though, so waiting for a dip may suit bullish investors.
