How Good Has CAVA Stock Actually Been?

There is money to be made -- and sometimes lost -- investing in the fast casual niche. Straddling the world of fast food and casual dining, some of the hottest restaurant stocks over the past few years have come from the fast casual concepts that try to offer the quality of a sit-down meal with the convenience of a quick-service eatery.

Cava Group (NYSE: CAVA) has been one of the market's most interesting stocks since going public at $22 on June 15, 2023. It's also been one of the most volatile for restaurant stock investors. Let's go over the ups and downs of the fast-growing chain specializing in Mediterranean cuisine with 415 locations across the country. Then let's see where Cava stock may go from here.

Image source: Cava Group.

One year

There's no sugar coating the spicy hummus dip here. Cava shares have lost almost two thirds of their value over the past year, falling 65%. It would've been even worse before the stock's 12% bounce on Friday. The S&P 500 (SNPINDEX: ^GSPC) has risen by 11% over the past year.

Revenue growth has decelerated for four consecutive quarters at Cava. Year-over-year sales gains have been cut almost in half, going from 39% in the third quarter of last year to 20% today. Expansion has slowed marginally. The real culprit here is the recent contraction of the once-heady comps. Cava's same-restaurant sales rose 2.1% in the second quarter (reported in August). Comps had risen between 11% to as high as 21% in the previous four quarters.

The situation didn't get better in the third quarter, which Cava reported earlier this month. Comps rose just 1.9%. Just as it had done over the summer, Cava would go on to lower its full-year guidance for comps. In its latest quarter, it also dialed back some margin-related metrics.

Two years

Checking the two-year chart, it's a photo finish. Cava's 46% rise through the last two years is barely ahead of the S&P 500's comparable 45% return. Zooming out that extra year makes a world of difference. It also goes to show how strong the stock was through the first half of this timeline.

Cava was on a roll. The year before Cava went public, sales rose a mere 13% for all of 2022. The company is growing a lot faster even now, and you've seen the market response. The IPO and the increased exposure when a consumer-facing business goes public have helped prop up unit-level sales.

Since IPO

Dig another five months deeper than the previous timeline, and those fortunate enough to get in on the IPO have achieved the best returns. Cava is trading 122% above its $22 IPO price. The S&P 500 has risen 51% since Cava hit the market.

Where does that leave us today? Despite the stock shedding roughly two thirds of its value, it's still not textbook cheap. It's trading at an earnings multiple just north of 100. Cava is fetching a little more than five times trailing sales, a premium among restaurant operators with company-owned locations. The keys to earning its market premium are returning to strong comps growth and boosting its margins. Cava has had an exciting two years and change in the market. The future may be just as compelling.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Cava Group. The Motley Fool has a disclosure policy.