CAVA stock price forecast: Post-earnings jump to be short-lived

By:
on Aug 16, 2023
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  • Cava Group stock price jumped by almost 10% in extended hours.
  • The company’s revenue rose by 27% to over $172.9 million.
  • There are concerns about the company’s valuation.

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Cava Group (NYSE: CAVA) stock price rebounded by more than 9.45% after the company published strong financial results. The shares jumped to $50.77 in extended hours after falling by 3% in the regular session. 

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Cava Group earnings

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Cava Group gave Wall Street the first taste of its finances as a publicly traded company. In a statement, the company said that its revenue jumped by 27% to $172.9 million while its same-store sales rose by 18.2%. This growth led to a net income of $6.2 million as the average unit volume came in at $2.6 million.

Another important part of the company’s results was the digital revenue mix. The company’s digital revenue mix came in at 36.1%, signaling that the segment is growing. Many investors compare it with Chipotle Mexican Grill (CMG), a company whose growth is being driven by digital.

Still, there are concerns about the company’s valuation. Cava Group is valued at over $5 billion against annual revenue of over $564 million. In 2022. The company generated a net loss of over $59 million. And analysts expect that its revenue for 2023 and 2024 will be $706 million and $829 million. 

Cava Group believes that its growth is strong enough to justify the valuation. It is still adding more restaurants in the Mediterranean restaurant sector. In its earning statement, the CEO said:

“Our dominant leadership position and proven portability create meaningful opportunity for growth in new and existing markets, as evidenced by our 16 Net New CAVA Restaurant Openings during the quarter”

CAVA stock forecast

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cava stock

CAVA chart by TradingView

In my last article on Cava Group, I warned that the shares would pull back to about $45. This view was accurate as the stock has plunged from ~$53 to $46. On the hourly chart, the stock has moved below the lower side of the ascending channel shown in green. 

CAVA share price has now bounced back to $50.77, which is above the 50-period moving average. The Stochastic Oscillator has moved close to the overbought level. Therefore, I still believe that the CAVA share price has more downside to go before bouncing back in the long term. If this happens, the stock could retreat to ~$40 in the coming weeks.

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