While AI stocks have been dominating the headlines, an unexpected contender outside the tech frenzy has been quietly delivering some unseemly gains. Cava Group (NYSE:CAVA) shares have been on one huge rip, surging by 177% since the turn of the year.
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However, the stock tumbled in Tuesday’s trading session, likely due to investor concerns that the Mediterranean fast-casual high-flyer may have peaked. With shares reaching all-time highs, several C-suite executives have opted to cash in, signaling that they consider these gains sufficient for the moment.
Turns out CEO Brent Schulman recently sold 210,504 shares, pocketing $24.87 million. Other big sales include Cava co-founder and chief concept officer Ted Xenohristos, who netted $12.387 million from selling 98,490 shares, and CFO Patricia Tolivar, who sold 5,000 shares for $628,175.
The disclosures followed in the wake of Cava’s fiscal second quarter print, which was strong all around and the reason behind the stock hitting its latest peak.
In the quarter, revenue increased by 35% year-over-year, reaching 233.50 million, while beating the Street’s forecast by $14.04 million. Same-store sales showed growth of 14.4%, also outpacing the analysts’ forecast of 7.4%, as traffic growth saw a 9.5% uptick. Meanwhile, along with the growth, the profit margin rose to 26.5% vs. last year’s 26.1%. The result was EPS of $0.17, representing a $0.05 beat against the consensus estimate.
Cava is also eyeing further expansion and intends to add between 22-25 new locations in the year’s second half. That saw the company increase its net new openings for the fiscal year from 54 to 57. Additionally, the company raised its FY24 adjusted EBITDA outlook from the prior $100.0 – $105.0 million range to between $109.0 to $114 million.
Given this strong outlook, the insider selling might seem surprising. However, as Morgan Stanley analyst Brian Harbour points out, the stock’s valuation could soon become a concern.
Apart from that, however, Harbour applauds the company’s excellent execution. “Not much is changing with the CAVA story at the moment, but it continues to be very strong, and the company is one of few still driving impressive traffic, sales and unit growth y/y,” the analyst said. “Setting aside the legitimate valuation debate, which may well become more prominent, upside for numbers continues to be visible here, and therefore we think this supports the stock post print, as we have seen for some others in the same boat this earnings season where fundamentals are good.”
Harbour’s take offers a bit of a conundrum. While he keeps an Overweight (i.e., Buy) rating on CAVA shares, he might as well have said Sell, as his $90 price target implies the stock is overvalued by 24%. (To watch Harbour’s track record, click here)
It’s a rather similar story amongst some of Harbour’s colleagues. CAVA stock claims a Moderate Buy consensus rating, based on 7 Buy recommendations and 6 Holds. On the other hand, the average target stands at $106.85, suggesting the shares will retreat by 10% in the year ahead. (See CAVA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
