CAVA Group stock is overvalued: levels to watch after earnings?

CAVA Group (CAVA) stock price has jumped to a record high, making it one of the best-performing cryptocurrencies in the industry. It soared to $151.4 on Monday as investors waited for its third-quarter earnings, which will provide more color about its business. It has jumped by over 416% from its lowest level on record, bringing its market cap to over $16 billion.

CAVA Group stock rises ahead of earnings

CAVA Group has been one of the top-performing restaurant stocks this year as investors compare its growth trajectory with that of Chipotle Mexican Grill, a company that has become valued at over $80 billion.

That’s because the two companies are largely similar, with the only difference being the region of the meals they prepare. CAVA Group focuses on Mediterranean dishes, while the Chipotle Mexican Grill has become the biggest Mexican food restaurant in the US.

The next important catalyst for the CAVA Group stock will come on Wednesday when the company publishes its financial results. 

Analysts expect these numbers to show that its revenue rose by 33.10% in the third quarter to over $233 million. Based on its historical performance after going public in 2023, chances are that the company’s results will be better than estimates. 

The highest CAVA Group revenue estimate is $243 million, while the lowest one is $217 million. Meanwhile, analysts expect its earnings per share will grow from $0.06 in the third quarter of 2023 to $0.11. 

Meanwhile, its guidance for fourth-quarter revenue will be $212 million, a 20% increase. For the year, analysts believe that CAVA Group’s revenue will rise by 28.7% to over $938 million followed by $1.1 billion in 2025.

CAVA’s growth happened as the company continued to add more restaurants in the United States. It has 341 restaurants, up from the 279 it had in the second quarter of last year. For the year, CAVA Group plans to add between 54 and 57 restaurants.

It has also added a few products in its menu, which has attracted more customers to its stores.

CAVA is a profitable company

What sets Cava Group from other growing companies is that it has already achieved profitability. The most recent quarterly results showed that its same store sales rose by 14.4%, while the amount of traffic rose by 9.5%.

CAVA Group achieved an adjusted EBITDA of over $34.3 million or 14.7% of its revenue. Most importantly, its margins are rising, with restaurant ones moving to 26.5%.

In addition to this, the company also has a strong balance sheet with over $347 million in cash and short-term investments and no debt.

Still, the main concern for the CAVA Group stock is that it is severely overvalued. For one, its $16 billion market cap means that each of its 341 restaurants are valued at $47.2 million. In contrast, Chipotle has a market cap of $80 billion and 3,500 restaurants, meaning that each is valued at about $22.8 million. 

CAVA Group’s estimated revenue for this year is $938 million, meaning that each store will have $2.75 million in sales. In Chipotle’s case, its revenue will be $11.32 billion, meaning that its stores will make $3.23 million. These numbers mean that CAVA Group is severely overvalued.

CAVA Group stock price analysis

CAVA chart by TradingView

The daily chart shows that the CAVA share price has been in a strong bullish trend in the past few months. It has jumped above the 50-day moving average, while the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards.

Therefore, there are two potential scenarios for the CAVA stock price after its earnings report on Tuesday. The most likely scenario is where the stock drops to the key support at $128.88, its highest swing on September 23. 

The other scenario is where the CAVA stock surges, and potentially rises to the key resistance level at $170. 

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