Down 44%, Is It Time to Buy This Growth Stock?

Jeremy Bowman, The Motley Fool

Sun, Mar 2, 2025, 2:00 PM 5 min read

Cava just capped off a year with 35.1% revenue growth to $954.3 million, driven by 58 new restaurant openings and same-store sales growth of 13.4%. Average unit volumes, or average sales per store, rose from $2.6 million to $2.9 million, showing that new stores are delivering strong results and that comp sales are having an impact. That led to a surge in profits, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 71% from $73.8 million to $126.2 million.

Despite the strong recent results, the stock has fallen after each of its last two earnings reports, and is now down 44% from its peak. Is the stock a buy? Let's take a look at what Cava has to offer investors today.

A group of people eating Cava takeout. — Image source: Cava.

Can Cava keep up its growth?

Cava's track record is certainly impressive, but the question for investors at this point is if it can keep up that growth, as stocks are valued based on future cash flows.

Looking to 2025, Cava's guidance called for a slowdown in comparable sales growth to 6%-8%. It also forecast 62-66 restaurant openings, and adjusted EBITDA of $150 million-$157 million, or 22% growth at the midpoint. Management sees a restaurant-level profit margin of 24.8%-25.2%, which is flat compared to 25% in 2024.

Investors should take that forecast with a grain of salt, as initial guidance for the full year is often conservative, especially for a growth stock like Cava. After all, management wants to make sure it can hit those numbers. The worst thing that can happen to a growth stock is for it to cut its full-year guidance.

However, there is reason to believe that Cava can top that forecast and continue to deliver strong growth for years to come.

First, the company easily topped its initial 2024 guidance. A year ago, management was calling for comparable sales of just 3%-5%, adjusted EBITDA of $86 million-$92 million, and restaurant-level profit margin of 22.7%-23.3%. It easily beat all of those numbers.

The company is also bringing strong momentum into the new year, as comparable sales jumped 21.2% in the fourth quarter, indicating it should be able to start 2025 with strong comparable-sales growth, as it would be unusual for that growth to disappear in one quarter. Additionally, Cava still has a lot of room for growth, finishing the quarter with 367 locations nationwide. According to its forecast, it will grow its store base by 18% this year, and the company expects to have at least 1,000 restaurants by 2032, tripling its store count.

Comparable-sales growth would be a boon to the stock, but with average unit volumes of $2.9 million, a similar level to Chipotle, the company doesn't need to keep delivering blowout comp sales growth for the business to be successful, as its individual restaurants are already generating more than $700,000 in unit-level profit per year.

To show how early it still is for the brand, among the new markets it's entering in 2025 include South Florida, Detroit, Indianapolis, and Pittsburgh. Given the buzz around the brand, those are likely to be strong openings, as new market entries tend to attract a lot of attention.

Is Cava stock a buy?

Cava stock is down 44% since its peak in November, not because of weakness in the business, but because of concerns around valuation.

After a pullback in the share price and another strong earnings report, the stock valuation has come down, but it's still very high. Based on its adjusted net income of $50.2 million, the stock trades at a price-to-earnings ratio of more than 200, and it's close to 90 times trailing adjusted EBITDA.

High growth expectations are still baked into Cava's stock, but the company has what it takes to live up to them. As it follows in the footsteps of Chipotle, investors should expect a steady stream of store openings, continued comparable sales growth, and improving profits.

Cava's discount may not last for long. Scooping up this restaurant stock while it's on sale looks like a smart move.

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*Stock Advisor returns as of February 24, 2025

Jeremy Bowman has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Down 44%, Is It Time to Buy This Growth Stock? was originally published by The Motley Fool

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