Cava stock: what could drive future gains after a 300% year-to-date rally?

Cava Group Inc (NYSE CAVA) chief executive Brett Schulman expects the company’s stock price to push further up as long as his team keeps its “head down and focus on the mission to bring heart, health, and humanity to food.”

Shares of the Mediterranean fast-casual restaurant chain are already up 300% versus the start of 2024 – and Schulman expects that momentum to continue as Cava delivers on its goal of setting up 1,000 restaurants by 2032.

That translates to about a 15% compound annualized unit growth rate.

But “this year we’ve been able to exceed that, and we gave preliminary guidance for next year of 17% plus given the strength of our real estate pipeline,” the chief executive said on CNBC’s “Squawk Box” on Wednesday.

Cava stock gains on strong Q3 earnings

Cava Group came in handily above Street estimates for its third financial quarter on the back of an 18% year-on-year increase in same-store sales on Wednesday.

The fast-casual restaurant chain expects traffic to remain strong as it continues to set up restaurants everywhere “from a suburban shopping center to an exurban small town, a college adjacent site, or an urban location with residentials.”

Cava has made aggressive investments into technology and infrastructure to become a “category-defining brand” that’s in many ways “creating the next major cultural cuisine category in the Mediterranean,” CEO Brett Schulman added in his interview with CNBC today.

The New York-listed firm ended its Q3 with over $23 million in free cash flow.

However, Cava stock does not pay a dividend in writing.

Cava can withstand inflationary pressures

Cava Group managed to expand its restaurant-level margins when inflation in the fast-food category was in double digits.

Moving forward, CEO Brett Schulman forecasts low-single-digit inflation in food, beverage, and packaging. The company has pricing elasticity but “we’re not necessarily looking to take it just because we can.”

Schulman sounded upbeat as he discussed the quarterly results with CNBC also because Cava is equally committed to a physical footprint as well as its digital channels – an approach the chief executive dubbed the right one to drive continued growth in the coming years.  

Cava Group generated about 34% of its overall revenue in the third quarter from its digital channels and 64% from its physical locations.

Is it too late to invest in Cava shares?

Cava stock currently trade at a premium in terms of forward sales as well as forward earnings.

But Wall Street seems to share the optimism of CEO Brett Schulman and is comfortable with the lofty valuation due to a steadily improving bottom line.

The consensus rating on CAVA currently sits at “overweight” and the Street-high price target of $180 indicates potential for another 12% upside from here.