After a meteoric rise following its 2023 initial public offering (IPO), small-cap stock %CavaGroup (NYSE: $CAVA) has cooled off, presenting a buy-the-dip opportunity.
A restaurant chain that specializes in Mediterranean or Greek cuisine, Cava Group opened its first fast-casual restaurant in 2011.
Today, the chain serves bowls and pitas at nearly 400 locations in the U.S. and has been growing its footprint by 50% annually.
In 2023, Cava became the first restaurant chain to go public since Sweetgreen (SG) in 2021, giving the company a roughly $5 billion U.S. valuation.
At the time of its market debut, Cava was billed as the next ChipotleMexicanGrill (NYSE: $CMG) and its stock took off, rising more than 300% and peaking at $172.43 U.S. per share at the end of 2024.
This year has been a different story as CAVA stock has pulled back 43% to now trade at $66.11 U.S. per share.
The decline has been due to a combination of factors, including worries about slowing growth and some disappointing financial results.
Like other restaurant chains, including Chipotle, Cava has struggled as consumers rein in their discretionary spending, which has included dining out.
However, there are indications that the worst of the selloff in CAVA stock might be over.
The company’s share price recently rose 16% in a single trading day after the restaurant chain reported top- and bottom-line beats and raised its full-year guidance.
For what was its fiscal third quarter, Cava reported that its revenue increased 39% year-over- year to $243.8 million U.S. driven by an 18% rise in same-restaurant sales.
Earnings per share (EPS) in the quarter increased 150% from a year ago to $0.15 U.S. Such strong growth has many analysts jumping back on the Cava bandwagon.
With a market capitalization of $7.66 billion U.S., Cava is a small-cap stock.
However, the company has shown that it continues to grow at a fast clip and its share price and valuation are likely to rise alongside future sales and profits.
This makes Cava a stock worth considering, especially if the U.S. economy remains resilient and consumer spending rebounds in coming months.
