Cava's Stock Surges After Q2 Results. Is Now the Time to Buy?

Cava Group (NYSE: CAVA) is known for its highly popular, fast-casual Mediterranean restaurant chains. Focusing on healthy eating options and offering ample international growth opportunities, the business has flourished over the years.

Recently, it posted its latest earnings, which came in better than expected by analysts. The growth stock has been rallying on the news. Could it be heading even higher, and is now a good time to buy it?

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Cava's business continues to do well in Q2

On Tuesday, Cava released its quarterly numbers for the period ending July 12. The results were encouraging as sales were up by 31% year over year, totaling $365.4 million -- analysts were expecting just $360 million. Same-restaurant sales growth was 9%, a good sign that the business is doing well organically, as that metric only considers restaurants that were open a year ago and excludes the impact of new locations. Analysts were anticipating organic growth of just 7.1%.

While there have been worries that the cyclospora outbreak might weigh on not only the business but also the industry as a whole, the company's Chief Financial Officer, Tricia Tolivar, says the effects of that may not prove to be significant: "Concerns around the broader impacts of the cyclospora outbreak have begun to ease."

For the full year, the company anticipates a slight slowdown, with same-restaurant sales growth expected between 4.5% and 6.5%. However, that's still a fairly strong rate in the industry, especially given the current macroeconomic challenges and uncertainty.

Is Cava's stock a good buy right now?

For much of the year, Cava's stock has struggled, but with recent earnings giving it a boost, it's on a positive trajectory once again. Year-to-date, it's up around 18%.

The problem with Cava's stock is that its valuation was already high to begin with, which means investors are paying for a lot of future growth. Its diluted per-share profit this past quarter was $0.19, and if that were maintained for a full year, it would equate to $0.76 over a 12-month time frame. With its share price at around $70 right now, that means it's trading at an earnings multiple of more than 90 -- assuming its earnings stay at around the same level. That's a rich premium even if its earnings were to rise higher, which is why I think Cava's stock might be too pricey to buy.

This is a stock worth watching and keeping on a watch list, and it may be worth buying in the future, but at its current valuation, it looks too expensive.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cava Group. The Motley Fool has a disclosure policy.