Did you miss Chipotle? Buy Cava instead.

Nothing repeats itself perfectly on Wall Street, but there are some things that rhyme. So if you look at Chipotle Mexican Grill (CMG 1.83%) and if you think you missed the early years of the restaurant’s growth, don’t fret. Cava Group (COFFEE 0.74%) it looks like they could be heading down a similar path, just with a slightly different food concept. Here’s what you need to know.

Chipotle Mexican Grill’s simple business model

One of Chipotle’s strengths is its assembly line approach to preparation. It’s quite simple, actually. In the background, guests can see the kitchen, where the food is freshly prepared. The food is then placed in containers that sit behind a glass counter. Customers then walk along the counter choosing what they want from the food. The options are somewhat limited, but the variety of food outcomes is wide and customer driven.

Image source: Getty Images.

To suggest that this highly personalized approach to food preparation is a hit with customers is an understatement. Chipotle’s growth is a clear testament to its popularity. The brand opened in 1993 with one location. By the end of 2015, it had about 2,000 restaurants. And by the end of the second quarter of 2024, it had more than 3,500 stores.

As for the financial results, well, they were pretty impressive. Over the past decade, revenues have grown nearly 12% per year on an annual basis. Earnings expanded at an annualized rate of 15.5% over the same period. That’s a pretty incredible feat, but not shocking for a popular and fast-growing restaurant brand.

If you missed Chipotle’s big rise, check out Cava

Given that background, it shouldn’t be too surprising that Chipotle’s stock has risen more than 6,000% since its initial public offering (IPO). But Cava Group has some important similarities to Chipotle, especially since the restaurant applies the same assembly-line food preparation approach, only with Mediterranean food and not Mexican food.

CMG data by YCharts

Cava didn’t do its IPO until mid-2023, so it’s still a very young company. At the end of the first quarter, as a public company, it operated just 279 locations. At the end of the second quarter of 2024, 341 restaurants were operating. Like Chipotle, Cava is looking to expand quickly.

Each new location will increase revenue. And as long as management can continue to operate its existing locations at a high level, with same-store sales that remain flat or, even better, grow, the new locations will fuel rapid top-line expansion. The result may be a bit more disruptive right now because the company is small and investing heavily in growth.

But if the top line continues to expand, earnings should eventually start to become more reliable. And it’s probably starting to head higher over time. Basically, once Cava reaches a certain scale, it will be able to self-finance its growth while generating positive earnings.

CAVA data by YCharts

Investors are not ignorant of the opportunity, having driven Cava shares up about 180% since its IPO. However, if you compare Cava to Chipotle, Cava could have years of business growth and stock growth ahead of it. To be fair, Cava will only be interesting to growth-oriented investors. Value types will think it’s too expensive, and income investors will be disappointed that Cava doesn’t pay a dividend.

Young growth stocks also tend to be volatile, so that’s something else to consider before jumping on board. However, if you’re a growth investor with a strong constitution, Cava could be the perfect stock for you if you feel like you missed out on Chipotle’s early years of huge growth.

Cava could be the next Chipotle

You can’t just look at Chipotle and extrapolate that company’s performance to Cava, no matter how similar the two business concepts are. But it’s hard not to see those similarities, and therefore the growth potential Cava has ahead of it. The key is to ensure that Cava lives up to its potential, which will mean keeping a very close eye on store openings and tracking same-store sales, which will give an indication of the health of the existing store fleet.

If Cava can continue to open new stores while operating existing locations at a high level, Wall Street will likely reward the stock with an increase in its stock price. It’s probably worth the risk if you feel like you’ve missed Chipotle, although the ride might be bumpy along the way.