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Cava stock analysis. Ticker: $CAVA

Restaurant business Cava joined the public markets last June and many investors think it could be the next Chipotle. At the current price, Cava has a market cap of 7 billion dollars. It’s got 332 million of cash on its balance sheet and no debt so the enterprise value is 6.7 billion.

CAVA opened 72 restaurants last year and grew revenue 29% to 729 million. Net income was 13 million and adjusted ebitda was 74 million. So Cava is now valued at an eye popping 9 times revenue, 500 times earnings and 90 times ebitda.

That sounds like a high valuation. But Cava’s Mediterranean fast casual dining is booming. And Cava looks very similar to an early Chipotle, which has been one of the best performing stocks of the last 20 years.

Back in 2002, Chipotle operated 222 restaurants, it now has over 3000 with annual revenues of almost 10 billion. Cava currently operates 309 restaurants and plans to get to 1000 by 2032.

Back then, Chipotle’s average restaurant, adjusted for inflation, generated roughly 2.1 million dollars in revenue, which is a little less than Cava’s current average. The companies share a similar assembly-line operation and same-restaurant sales growth for the two firms are also very similar.

However, the comparison with Chipotle also highlights a major problem for the stock. It’s taken Chipotle 20 years of impressive execution to get to where it is now which is an 80 billion dollar market cap.

If Cava does become the next Chipotle, and achieves the same valuation, CAVA stock would only return about 12% annualized over that stretch. Those are obviously good returns — but they require that Cava becomes one of the best restaurant chains in the world.

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