Even With Tesla Under $400, I'd Still Rather Buy This Unstoppable Growth Stock in July

Tesla (NASDAQ: TSLA) has slipped below $400, and plenty of investors see the pullback as a bargain on a future robotaxi empire. I understand the appeal, but with July cash to put to work, I would rather own a consumer growth story I have far more conviction in: Cava Group (NYSE: CAVA).

Image source: Getty Images.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

The Tesla sell-off, briefly

Tesla's recent drop is worth understanding before moving on. The company actually delivered a strong quarter on volume, beating expectations, yet the stock sank anyway. Investors zeroed in on the less flattering details: shrinking profit margins as Tesla leaned on discounts and inventory to move cars, months of declining sales in its home North American market, and heavy spending on autonomy and robotics that is squeezing cash flow.

On top of that, the stock still trades at an extraordinarily high valuation that assumes self-driving success no one can yet guarantee. That is a lot of hope baked into one price, and it is why I would rather look elsewhere.

Why I would rather buy Cava

Cava runs a fast-growing chain of Mediterranean restaurants, and its momentum has been remarkable. In its most recent quarter, sales at established locations jumped nearly 10%, driven more by more people walking through the doors than by higher prices. That is the healthiest kind of growth a restaurant can post, because it shows customers genuinely love the concept and keep coming back.

Just as important is the runway ahead. Cava is opening restaurants at a rapid clip, recently raised its opening target for the year, and is pushing into new markets across the Midwest on its way toward a goal of 1,000 locations by 2032. Because the company is already profitable while it expands, each new restaurant tends to strengthen the business rather than drain it.

To me, a beloved brand with a long, self-funding growth path is a more dependable place to compound money than a car company betting its valuation on technology that keeps slipping.

Beware, though, Cava is not cheap. After a big run, a lot of its future growth is already reflected in the stock, so any slowdown in traffic or a stumble in new-market openings could hit the shares hard. A weaker consumer could also pressure restaurant spending. This is a growth stock, with the volatility that label implies.

Tesla priced at less than $400 may tempt bargain hunters, but the stock is really a bet on an uncertain autonomous future. Cava offers something I find easier to underwrite: a proven, profitable concept with years of expansion ahead. For July, I would rather buy the restaurant chain that is quietly filling its dining rooms than the automaker still trying to prove its next act. Just size it as the growth stock it is.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cava Group and Tesla. The Motley Fool has a disclosure policy.