With the Cava (NYSE:CAVA) initial public offering (IPO) this morning, it’s finally official: everyone’s favorite Mediterranean fast-casual chain is finally publically traded and is enjoying a prosperous first day on the market. Although not everyone’s in agreement over the CAVA stock IPO. Indeed, while Cava raised its valuation from $2.12 billion to $2.23 billion earlier this week, earning an IPO price of about $18 per share. However, some investors have still expressed doubt over whether the popular restaurant chain has staying power.
This includes the like of CNBC’s Jim Cramer, who recently advised his listeners to be cautious over the inevitable buying frenzy when Cava first hits Wall Street:
“Unless you can get a piece of the actual IPO on the IPO, I recommend holding off on this one,” Cramer told viewers. “And, please, if you do want to buy Cava in the aftermarket, I’m begging you, please use limit orders, not market orders, protect yourself. In fact, you should always be using limit orders, because you have no control over the price you pay with market orders.”
According to Cramer, CAVA IPO underwriters likely purposely underpriced Cava at between $17 and $19 a share to manufacture “a nice first-day pop.”
While it’s hard to call Cramer a prophet, there’s no denying he was on the ball this time around. CAVA stock shot up as high as 107% on its debut Thursday. Currently, CAVA is trading for $41.50, a roughly 90% gain.
CAVA Stock IPO Triumphs, Draws Comparison to Sweetgreen, Chipotle
While it seems investors are clamoring over Cava today, many remain cautious over the hype cycle many high-profile IPOs have exhibited lately, especially in the restaurant business.
Although Cava enjoyed almost 13% revenue growth last year off the back of a 28.4% increase in Q1 sales, the company is not yet profitable. And while there have been examples of high-growth restaurants making it big long-term following their public debut, like Chipotle (NYSE:CMG), there are also the Sweetgreens (NYSE:SG) of the world, which, despite plenty of early anticipation, has mostly seen its share price dwindle.
According to Cramer, while Cava has the makings of a success, the post-IPO buying frenzy may not make it worth the cost of entry — yet.
“It’s just that I’m wary of paying too much for Cava the stock. If the IPO’s a hit on Thursday, you might want to wait for it to cool off before you even think of pulling the trigger,” Cramer said.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
