The Best Stocks to Buy Right Now: Chipotle vs. Sweetgreen vs. Cava Group
Key Points
Cava is growing faster than Chipotle, while Sweetgreen's sales are declining.
Chipotle's profit margins are higher on a consolidated basis, but Cava is closing the gap.
Cava's growth runway gives it a slight edge over investing in Chipotle today.
- 10 stocks we like better than Cava Group ›
Restaurant and food stocks have struggled in the last few years. Some investors chalk it up to the rise of weight loss drugs like Ozempic, while others claim it is due to rising prices and a struggling consumer. I think it is a mix of both.
Chipotle Mexican Grill (NYSE: CMG) and Cava Group (NYSE: CAVA) are down around 50% from highs, while Sweetgreen (NYSE: SG) is down over 80%. But which of these three restaurant stocks -- if any -- is the better buy today? The answer is clear when evaluating both growth, profitability, and valuation across these three businesses.
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Image source: Getty Images.
Differing growth trajectories
When evaluating a restaurant, the most important metric is, by far, comparable-store sales growth. This measures same-store revenue growth for locations that have been open for the past 12 months. If a restaurant brand is producing same-store sales growth above inflation, it will likely increase its long-term profit potential, as its revenue is growing faster than its costs at a per-location level.
For these three restaurants, there is a wide disparity in same-store sales growth today. Cava leads the pack with 9.7% same-store sales growth, bucking the trend of restaurants struggling with traffic in recent quarters. Chipotle is in the middle, with comparable-store sales growth of just 0.5%, which is typical for a restaurant right now. However, it should be noted that this is below the current rate of inflation in the United States, which is why Chipotle's restaurant-level profit margins are down.
Sweetgreen is struggling mightily. It posted comparable-store sales growth of -12.8% last quarter, which will put the salad chain in a financially distressed position if it cannot turn things around soon.
Profit profiles and valuation
Profitability -- unsurprisingly -- stems from comparable store sales growth for these three restaurant chains.
Cava's restaurant-level operating margin was 25.1% last quarter, while Chipotle's slid to 23.7%. Chipotle's margin is still much stronger on a consolidated basis, with a 16% operating margin versus 7.2% at Cava, but that is because it has a much larger store base right now. Cava is closing in quickly and is better positioned for greenfield expansion opportunities across the United States. Sweetgreen again trails the pack with a restaurant-level operating margin of just 10%.
Valuation is where the tables flip. Investors are placing a premium on Cava's growth potential, with a price-to-sales (P/S) ratio of 7.4, while Chipotle's is 3.6 and Sweetgreen's is 1.6. A P/S ratio is a good way to measure apples-to-apples for restaurants at different points in their life cycles, since most should have similar input costs at scale and similar profit margins if they're run well.
CMG EBIT Margin (TTM) data by YCharts
The final decision
It should be clear already that an investor should not buy Sweetgreen stock right now. The business is struggling mightily and may never generate a profit.
The question is whether to buy the more established brand, Chipotle, at a lower valuation, or Cava, with its explosive growth potential. Chipotle has over 4,000 restaurant locations, compared to Cava's 459. To be fair, Chipotle still has room to expand its global location count, which should drive revenue growth, but its same-store sales growth has been stuck in the mud for several quarters now.
On the other hand, Cava is experiencing phenomenal momentum in traffic and sales while still having room to grow as large as Chipotle one day, or close to 10 times its current store count. If Cava can grow to the size of Chipotle today and keep growing its same-store sales, its current revenue of $1.3 billion could reach $15 billion or higher over the next decade.
This is not going to happen overnight, but I think Cava's growth potential makes up for its slightly more expensive valuation right now. Cava is slightly more attractive than Chipotle right now, while both are much smarter buys than Sweetgreen.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cava Group and Chipotle Mexican Grill. The Motley Fool recommends Sweetgreen and recommends the following options: short June 2026 $36 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
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