Cava Stock (NYSE: CAVA) – 1 Year Anniversary Gone, And A Double Up, Is It Still A Buy?

Fresh off it's 1 year IPO anniversary, the Cava stock price (NYSE: CAVA) has seen an impressive leap, more than doubling in value. With 140% gains under the belt since June 16th 2023, the question remains as to whether CAVA can still be a buy at these levels?

This performance as far as price-action goes has caught the eye of markets no doubt, but there comes a caveat: a price-to-earnings (P/E) ratio in the triple digits, signalling a valuation that may raise eyebrows among cautious investors. The fast-casual Mediterranean-themed restaurant chain continues to garner the support of some analysts, but where are they seeing growth?

While the high P/E ratio can be disconcerting, it's essential to delve deeper into the company's operations and growth strategy to gain a clearer perspective.

With around 325 restaurants to its name, Cava is dwarfed by the presence of industry giants like Chipotle Mexican Grill (NYSE: CMG), which operates nearly 3,500 locations. This comparative analysis, however, may augur well for Cava, suggesting significant room for expansion and growth in the long term. Further bolstering investor confidence, the company inaugurated 14 new locations in the first quarter of 2024 alone, marking a year-over-year increase of over 20% in its store base.

A View From The Bulls

Analysts at Argus have recently raised their price target on Cava shares to $105 from a previous mark of $70. The firm maintain a Buy rating, and back up the raise with commentary supporting strong Q1 results, and the technical support of the stock on the chart. The firm believes Cava's continued innovation will drive sales, especially as consumers seek out protein menu options and supports the idea of expansion with new stores.

With great potential also comes the need for meticulous scrutiny. Prospective investors must balance the exciting growth prospects against the lofty valuations and monitor how effectively Cava manages scale, competition, and the myriad challenges accompanying rapid expansion. Such a balancing act makes Cava an attractive proposition for those with an aggressive investment stance, ready to back their conviction with close observation of the company's progression.

A View From The Bears

JP Morgan downgrade the stock Neutral, with the price target remaining firm. A target of $77 standing against the latest close in the mid $91 range leaves substantial downside. The commentary referred to the disconnect in having a previously bullish rating, with a price target significantly below the current level.

The firm support the “clean business model”, but prefers Chipotle (CMG) at the current prices. Hold or reduce positions versus scaling up wrapped up the sentiment.

While the P/E ratio of Cava's stock may give the impression of an overheated asset, it's crucial to recognise that such figures often accompany young, growth-oriented companies.

Those willing to wager on the strategic execution of the ambitious chain may still find the current stock price worthy of investment, providing they are prepared to embrace volatility and maintain vigilance on the company's performance but the view from the street is mixed.