Chipotle Mexican Grill (NYSE: CMG) has actually been a substantial success. The stock is up over 4x in the last 5 years and over 130x from its going public (IPO) cost of $22 back in 2006. Not remarkably, financiers have actually long been searching to discover the next Chipotle.
One of the latest competitors is Mediterranean fast-casual dining establishment operator Cava Group (NYSE: CAVA). How does the business accumulate to Chipotle, and should financiers think about purchasing the stock?
Similar qualities
Chipotle has numerous qualities that assisted its stock reach its present heights. One of the greatest chauffeurs behind its stock has actually been its capability to broaden and include more areas for many years. Expansion likewise represents a huge chance for Cava.
Cava ended 2023 with 309 areas in 24 states however has actually set its sights on having 1,000 websites by 2032. The business utilizes what it describes as a “coastal smile” technique, focusing its advancement on seaside states and the Sun Belt.
However, it has actually begun going into the Midwest and other locations, just recently opening dining establishments in Colorado, Oklahoma, and Missouri. With just 16 dining establishments in California and 27 in the Northeast, the business has lots of in-fill chances. Cava anticipates to include about 50 brand-new dining establishment areas this year.
A 2nd resemblance that Cava show Chipotle is that it utilizes reasonably couple of components — simply 38. This assists produce dining establishment effectiveness, such as accelerating consumer wait times and getting rid of food waste. This causes greater restaurant-level margins, which are the operating margins a dining establishment creates before considering business expenses.
Cava had 24.8% restaurant-level margins in 2023, compared to 26.2% for Chipotle. Cava still has some space to capture up, however for a young business, that’s a strong number.
A 3rd method Cava resembles Chipotle remains in a metric referred to as typical system volume (AUV), which is the typical sales each dining establishment creates. Last year, Chipotle went beyond $3 million in AUVs. By contrast, Cava had 2023 AUVs of $2.6 million. That’s about 13% less than Chipotle, however this is extremely strong for such a young brand name, and in specific markets such as California and the Northeast, Cava has AUVs above $3 million.
The business has actually likewise been growing its same-restaurant sales quicker than Chipotle. It saw development of 17.9% in 2023 and 11.4% year over year in Q4, compared to 7.9% same-restaurant sales at Chipotle in 2015 and 8.4% in Q4.
Image source: Getty Images.
Cava is a pricey stock
Cava is revealing a great deal of comparable qualities to Chipotle. Perhaps not remarkably, its stock cost isn’t low-cost, offered the early capacity the dining establishment idea is seeing. The stock trades at a forward price-to-earnings ratio (P/E) of almost 275x and a price-to-sales multiple of over 8x. Looking at it another method, the business trades at over $22.5 million for each of its dining establishments.
CAVA PE Ratio (Forward) information by YCharts.
If Cava can continue its course for the next couple of years, this dining establishment stock might have a lot more upside ahead. However, its appraisal does not leave much space for mistake.
It’s likewise significant that the business’s idea resembles Zoe’s Kitchen, which at one point was a hot stock before it lost its radiance and was offered to Cava. Many of Cava’s areas are old Zoe’s areas. It obtained the business and its 268 dining establishments for just about $300 million back in 2018. Zoe’s had actually broadened too rapidly and started having problem with decreasing sales at the time of the acquisition.
By transforming Zoe’s Mediterranean idea to the Cava Mediterranean idea, the business has actually seen its worth boost more than 20-fold. While Cava has a great deal of capacity, its appraisal is keeping me on the sidelines at present levels.
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Geoffrey Seiler has no position in any of the stocks discussed. The Motley Fool has positions in and advises Chipotle Mexican Grill. The Motley Fool advises Cava Group. The Motley Fool has a disclosure policy.
