Is it too late to buy cava stock?

In a year where investors’ attention has focused entirely on artificial intelligence (AI), The CAVA group (COFFEE 0.29%) it has been quietly one of the best performing stocks in the market.

Shares of the fast-casual chain are up 184% year-to-date through Aug. 23, as the company posted a series of breakout earnings reports, showing it could be next Chipotle Mexican Grill.

While Cava’s run is certainly good news for investors who bought shortly after its IPO last June, for those watching from the sidelines, there’s a more relevant question to ask. Is it too late to buy Cava shares? Let’s take a look at where the business is today and its long-term prospects.

Image source: Cava Group.

The Scorching Growth of Cava

Cava’s second-quarter results help explain why the stock has soared this year, as the company delivered breakout results in nearly every key measure in the second quarter.

Comparable sales rose 14.4%, including a 9.5% increase in traffic, which shows that its customer base is growing and customers are visiting more often.

It’s also expanding rapidly, adding 18 new locations in the second quarter and growing its base by 22%, which helped boost revenue by 35% to $231 million.

Cava’s unit average volume reached $2.7 million, not far behind Chipotle’s $3.1 million, showing that its restaurants are popular. Meanwhile, the company’s profitability is growing rapidly. Restaurant-wide profit margins improved from 26.1 percent in the year-ago quarter to 26.5 percent, compared to Chipotle’s 28.9 percent, the industry gold standard.

Cava’s bottom line is also up, with net income tripling in the quarter to $19.7 million, giving Cava an 8% profit margin, which is impressive for such a young restaurant company, as this margin should increase as it grows.

The company also managed to build a strong digital business, with digital sales making up 36% of revenue in the quarter.

Where does Cava go from here?

Cava ended the quarter with 341 locations and appears to have room for growth given strong demand for its product. Again using Chipotle as an analog, the burrito chain now has about 3,500 locations and expects to double that number to 7,000.

Cava CEO Brett Schulman said in an interview earlier this year that the company wants to reach 1,000 locations by 2032. That goal could prove modest if Cava can maintain its current momentum, which has was driven in part by the launch of a new grilled steak. entry, which management said “significantly exceeded its expectations.”

Cava raised its store opening guidance for the year to 54-57, showing the company is already accelerating toward its goal of 1,000 locations. It also raised guidance for same-store sales and profit margins at the restaurant level.

Is it too late to buy Cava?

Cava’s resulting earnings were justified, but the stock is expensive, trading at a forward price-to-earnings (P/E) ratio of more than 300, although those estimates are likely to rise after the recent report. On a price-to-sales basis, Cava is also expensive at a price-to-sales (P/S) ratio of 14.

Comparing Cava to Chipotle, its market cap is now $14 billion, giving it nearly a fifth of Chipotle’s market value of $73.6 billion, even though Cava only has 10% of the locations it owns. Chipotle has them.

In other words, investors expect Cava’s profits to rise, and that expectation is largely baked into the share price.

Still, the company has a number of qualities that could make it the next big fast-casual chain, including the backing of Ron Shaich, the founder of Panera Bread, who is now Cava’s chairman, and the stock is still positioned to be a long . -term winner.

Given the premium price, a good move would be to take a small position in Cava stock today and opportunistically buy it on pullbacks. While high expectations are included in the stock, if comparable sales growth remains in the double digits, profits will continue to rise.