CAVA Group (NYSE:CAVA) stock rose sharply on Dec. 12 as insiders did not sell heavily after their lock-up period expired. But there was profit-taking this morning, with shares falling 4% in early trading.
Cava was trading early this morning at around $37.30 per share, a market capitalization of $4.24 billion on expected 2023 sales of $654 million. The company had its initial public offering (IPO) in June, so top executives can start selling their shares now.
The Greek Chipotle
Cava is a chain of about 300 fast-casual Mediterranean restaurants, sometimes called a “Greek Chipotle.” It offers bowls and lunch wraps at $15-$20 and is based in Washington, D.C.
Cava first came to public notice in 2018 when it bought Zoes Kitchen for $300 million. Back then, Zoe’s had five times as many restaurants as Cava. Over time, Zoe’s outlets were converted into Cavas, with cafeteria-style lines and online ordering. Zoe’s founders have since re-opened one of their units in Alabama.
Skepticism about Cava stock rose once the conversion process was completed. Cava will now have to build new outlets from scratch. The Dec. 12 move was called a “relief rally.”
Cava was helped this year by an early move to hike wages, adjusting prices ahead of other chains. This means it hasn’t raised prices much this year, which helped it grow.
Cava and Chipotle (NYSE:CMG) are trading similarly, at about 6 times their revenue. Chipotle manages to bring 12% of revenue to the net income line. Cava earned $6.8 million, 6 cents per share, in the September quarter, on revenue of $175 million. Revenue grew 49% year-over-year, with same-store growth of 14%.
Cava came public in June at $22 per share, raising $318 million. It closed on its first day of trading at $43.78. Since then, shares traded as high as $56 in August and as low as $30 in October. They’re currently within single digits of the first day’s close.
CAVA Stock: What Happens Next?
Cava has the look and feel of a Chipotle, which is 10 times larger with 3,300 locations. If Cava can maintain profitability, it has lots of room to grow.
As of this writing, Dana Blankenhorn 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.
