CAVA Group stock price forecast ahead of earnings: buy or sell?

By:
on May 24, 2024
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  • CAVA Group will publish its financial results on May 28th.
  • Analysts expect its quarterly revenue will be $245 million.
  • Investors believe that the company can replicate Chipotle Mexican Grill’s growth.

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CAVA Group (NASDAQ: CAVA) stock price has surged to a record high as investors compare it with Chipotle Mexican Grill (NYSE: CMG). It soared to a high of $82.82, which was 182% above its lowest level in 2023. This jump has brought its total market cap to over $10 billion.

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Comparisons with Chipotle

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CAVA Group’s shares have surged hard this year, helped by its strong revenue growth and future potential. Its annual revenue has jumped from over $500 million in 2019 to over $728 million in 2023. 

Analysts are optimistic that its revenue growth will accelerate and reach over $878 million this year and $1.04 billion in 2025. Based on its past performance, there is a likelihood that the company’s revenue will be better than estimates.

Most importantly, the company’s growth is happening at a time when it has become profitable. It generated a net profit of over $13.3 million in 2023 and over $2 million in the first quarter. This happened as it opened 95 new stores in Q1 and 175 new ones in 2023.

CAVA Group anticipates that its growth will continue this year. It expects to open between 48 and 52 new stores and make an adjusted EBITDA of between $86 million and $92 million.

As I wrote in my last article, there are comparisons with Chipotle, a company whose market cap has jumped to over $86 billion and its annual revenue jumped to almost $10 billion in 2023. While Chipotle focuses on Mexican dishes, CAVA Group is a Mediterranean brand. 

Analysts and investors believe that CAVA Group can continue growing through the opening of new store locations and acquisitions. For example, it acquired Zoes Kitchen in 2018 in a $300 million deal. 

The biggest concern about CAVA Group stock is that it is severely overvalued, just like Chipotle. It has a forward PE ratio of 309 and a forward EV to EBITDA multiple of 10.12. The two numbers are higher than the industry average of 16.2 and 1.2, meaning that it is priced to perfection. Chipotle has a forward PE and EV to EBITDA ratios of 56 and 7.83, respectively. 

CAVA Group stock price analysis

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CAVA Group

CAVA chart by TradingView

CAVA shares have done well as I predicted in my previous article. It has risen from the year-to-date low of about $29 to about $84 and flipped the crucial resistance at $71.41 into a new support. Moving above that level invalidated the double-top pattern that was forming.

CAVA has remained above all moving averages while the Awesome Oscillator has moved above the neutral point. All these are signs that the company is doing well. The Relative Strength Index (RSI) and the MACD have continued pointing upward.

Therefore, while the stock has more upside, it could move in either direction after earnings. My base case is where the stock drops to about $75 after earnings since its growth has been priced in. The alternative scenario is where it continues pumping as buyers target the resistance at $100.

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