Cava continues to prove it’s the new Chipotle

With markets so high, it’s especially hard these days to commit capital to high-value stocks. In Cavahis (COFFEE 2.86%) Case in point, the Mediterranean food chain could be an exception. Shares are up more than 26% over the past five days on the back of a stellar second-quarter earnings report. I see this chain as new Chipotle (CMG 0.81%) with great growth potential.

results

Let’s start with revenue growth. After all, that’s what everyone is looking for in a growth-focused company like Cava. The company was able to report a 35.2% year-over-year revenue increase in the second quarter to $231.4 million. How often do you see this level of growth? Same-restaurant sales increased 14.4%, while restaurant profit improved 37.3% year-over-year. Overall, earnings of $0.17 per share beat expectations of $0.13.

Cava also raised its guidance for fiscal 2024. Same-restaurant sales are now expected to rise 8.5% to 9.5%, compared with previous guidance of 4.5% to 6.5 %. One of the big announcements here was the introduction of grilled steak to the menu, which the company said exceeded expectations.

Cava’s performance contrasts with that of many chain restaurants, which have struggled to increase traffic with a more fickle customer base. McDonald’sFor example, same-store sales fell 1% in the most recent quarter, compared to Cava’s 14.4% increase.

stock

Over the past year, this stock has seen price gains of 183% compared to S&P 500its yield of 27.5%. The performance was amazing. The question now becomes: can it continue? This is an easy stock to beat based on earnings. Cava trades at more than 900 times earnings based on diluted 2023 earnings of $0.12 per share and 513 times analysts’ 2024 estimates of $0.23 per share.

Despite the expensive nature of the stock, I still like Cava in the long run. Traffic was up 9.5% during the quarter, which is again in contrast to what was a weaker quarter for restaurants. The company continues to beat expectations, which means that current estimates for the future are not necessarily accurate. In addition, it gains clear momentum in an area of ​​the kitchen that has not been approached in this way before. The way the company combines Mediterranean food with a Chipotle-like business structure makes me think the story of upside surprises can continue, and investors have made it clear they’re willing to put up with the stock’s big premiums. if Cava exceeds expectations.

With under 400 current locations, Cava has a lot going for it compared to a similar enterprise like Chipotle, which has more than 3,000 stores. Cava plans to open between 54 and 57 new restaurants for the full year, meaning we’ll see those top numbers continue to expand with unseen growth potential. In a restaurant sector that is experiencing weaker traffic and same-store sales, I like the idea of ​​sticking with the name that has momentum in the industry.