CAVA Stock Price Sheds 25% in February as Analysts Trim Targets

CAVA's stock (NYSE: CAVA) sentiment has taken a turn for the worse in February, the price having shed more than 25% through the month, with only 2 trading sessions remaining. This coming after a 17% rise through January, and a ~75% gain in 12 months highlights somewhat of a turning tide. With recent earnings coming in a little light on EPS, and analysts revising down price targets, is this the beginning of a longer term pullback, or merely a blip in the growth story?

On the positive side, the company, a Mediterranean fast-casual dining chain reported significant growth in its sales and expansion activities, aided by the introduction of new menu items. Since its inception in Bethesda in 2011, CAVA has expanded to nearly 400 locations. In 2024, the company achieved a 13.4% increase in same-store sales, a key indicator of success in the retail and restaurant industry.

Revenue came in for the quarter at $225.1 million, a slight beat on the street's expected $223.3 million. EPS came in light however, with the company reporting $0.05 per share against the expected $0.06. Analysts from Barclays ($104 from $127), Baird ($154 from $182), TD Cowen ($130 from $150), and Morgan Stanley ($130 from $135), all lowered price targets on the print.

The consensus price target of $136.92 remains firmly to the upside, with the stock currently trading below $100. Potential for more than 35% in gains from here paints a strongly bullish picture from the street, however these marks are notoriously fickle, and further adjustments could be on the horizon with earnings recently having been released. Fundamentals should not be overlooked.

Operationally, the growth in sales is partly attributed to CAVA's introduction of grilled steak, which was launched in 2024 and has been well-received by customers. The steak option features grass-fed beef seasoned with Mediterranean spices, including sun-dried tomato powder and Aleppo pepper. This new menu item has contributed to the increase in customer footfall and overall sales, offering customers additional high-quality options such as steak bowls and pita wraps.

During 2024, CAVA increased its nationwide presence by opening 58 new restaurants, the last quarter seeing the inauguration of 15 new locations, bringing the total count to 367 locations. In line with its expansion strategy, CAVA plans to open between 62 and 66 new locations in the fiscal year 2025. This expansion effort is supported by financial accomplishments, including raising more than $300 million from an initial public offering on the New York Stock Exchange in 2023, followed by securing an additional $190 million in investments in 2024.

With sentiment shifting from the overwhelmingly bullish action through 2024 into a more sanguine 2025 shows the need for careful consideration and risk management in positioning. The company could be set for a great year ahead, however for now, the word of the day seems to be calling for caution.