Title: Assessing Cava Group's Growth Potential Against Chipotle Mexican Grill
Mediterranean fast-casual restaurant chain Cava Group, often referred to by its ticker symbol CAVA (0.46%), has been earning plenty of praise for its impressive growth potential and performance. This year, the stock has been a golden ticket for investors, with share prices skyrocketing over 227%, compared to Chipotle Mexican Grill's (CMG -2.45%) modest 32% increase.
But is Cava Group truly the better growth stock to invest in, leaving Chipotle in the dust? Let's examine some key factors to gain a clearer picture.
How the companies stack up in terms of revenue growth
Revenue growth is a fundamental metric for assessing growth stocks. Cava Group has certainly been turning heads with its triple-digit quarterly sales growth – usually surpassing 20%. However, it's essential to note that Cava, being a smaller company, is working with lower revenue numbers, making it easier to show impressive growth figures.
Let's break it down: Chipotle generated a whopping $2.8 billion in revenue in Q3, a figure that's over 11 times more significant than Cava Group's $244 million in Q3 sales. When you consider that smaller businesses inherently have an easier time growing at faster rates, the picture becomes clearer. Plus, Cava's smaller footprint (352 locations versus 3,600 for Chipotle) means it has ample room for expansion, particularly in fast-growing markets.
Profitability: Chipotle leads the pack
While Cava Group has been steadily upgrading its bottom line, Chipotle has been outpacing it when it comes to profit margins. Strong profit margins are crucial for maintaining growth as revenues scale, which can help improve a company's valuation and attract investors.
As earnings figures rise, so does the potential for a reduction in the price-to-earnings (P/E) multiple, making the company more attractive to value investors as well. Fortunately, Cava Group's profit margins have been improving, narrowing the gap between the two companies.
Chipotle still takes the top spot for me
Although Cava Group has shown impressive growth trajectories and has the advantage of being able to focus on growth markets, Chipotle remains the more profitable and established company. Chipotle's market presence offers more stability than Cava Group, its valuation is more reasonable, and it continues to turn in solid financial performance.
Total investment decisions ultimately depend on each individual's risk tolerance, investment goals, and personal assessments. But until Cava Group can widen the profitability gap and maintain its strong growth rates, it's hard to ignore Chipotle's consistent performance and attractive valuation.
[1] Enrichment Data:
- Revenue Growth:
- Cava Group: Cava reported a 39% YoY revenue growth in Q3 2024, exceeding consensus estimates of $233.05 million. Same-store sales and guest traffic both climbed by 18.1% and 12.9%, respectively. Menu pricing and product mix changes contributed to around 5.2% of the growth.
- Chipotle Mexican Grill: While Chipotle's Q3 2024 revenue growth fell short of estimates, it still managed a respectable 13% YoY increase, reaching $2.79 billion.
- Profit Margins:
- Cava Group: Cava's Q3 2024 restaurant-level profit margin increased significantly to 25.6%, signaling an improvement in profitability.
- Chipotle Mexican Grill: Chipotle's profit margins haven't experienced as much growth, but they have remained stable. Chipotle's high-quality ingredients and customer experience have helped maintain its profitability, though the exact figures aren't specified.
- Valuation:
- Cava Group: As of January 2025, Cava Group boasted a high valuation with a P/E ratio of 256.98, which caused the stock price to surge to a high of $172.43. However, it has since stabilized at around $118.21.
- Chipotle Mexican Grill: With a more moderate P/E ratio of 53.54 as of January 2025, Chipotle's stock price has shown more stability, hovering around $57.52.
Despite Cava Group's impressive triple-digit quarterly sales growth, it's important to consider the company's smaller revenue numbers and lower profit margins compared to Chipotle Mexican Grill. While Cava's profit margins have been increasing, they still lag behind Chipotle's. The higher valuation of Cava Group may make it less appealing to some investors, especially given Chipotle's more moderate valuation and stable stock price.
