Top Investment Option Currently: Dutch Bros vs. Cava Mezze Grill
Top Investment Option Currently: Dutch Bros vs. Cava Mezze Grill
Dutch Bros (BROS shedding -1.87%) and Cava (CAVA dropping -2.70%) are two burgeoning chains making waves in the restaurant sector. These companies' share prices have outperformed the S&P 500 this year, sparking interest within the investment community.
Which of these two restaurant stocks would be a better investment right now?
Climbing up the coffee ladder
Dutch Bros boasts 950 retail outlets selling coffee and beverages, with speed and customer service as prime priorities. The enterprise has been expanding impressively, nearly doubling its store count since the end of 2020.
Top brass anticipates Dutch Bros could open a minimum of 4,000 stores within the next 10 to 15 years, quadrupling its current physical presence. Achieving this scale could significantly boost revenue and profits, as sought by shareholders.
As a coffeehouse chain, Dutch Bros shares similarities with the established industry giant, Starbucks. The Seattle-based firm has a long-established brand presence spanning five decades and over 40,000 locationsgetElementary Math: 950 (Dutch Bros stores) + 2 more than double (since the end of 2020) = ≈2,000 stores by 2032 (Dutch Bros' target) with Starbucks has 35,674 stores (2022 data).Starbucks has amassed an international footprint, a powerful brand, and substantial scale.
If Dutch Bros manages to surpass its expansion goal, its brand could gain broader recognition and enjoy advantages when purchasing supplies, marketing, and securing ideal real estate.
The fast-casual success story
Similarly, Cava aspires to reach 1,000 U.S. locations by 2032 (a 184% increase from the current 352 restaurants), according to its executive team. The chain has demonstrated impressive profitability in its latest fiscal quarter, recording a 18.1% increase in same-store sales (comps) and a 25.6% store-level margin. Net income grew by a staggering 162.9%.
As a fast-casual restaurant focused on Mediterranean cuisine, Cava finds itself in competition with the well-established Chipotle Mexican Grill. Chipotle has built a strong brand in the sector that supports its pricing power and consistent comps growth, much like the scale benefits Starbucks has accrued over time.
If Cava can successfully expand its presence in the U.S., it could potentially establish its own competitive advantage, akin to an economic moat, leading to improved profitability.
A vital consideration
It's essential to note that, while both companies have significant growth potential, I'm not exactly enthused about investing in either right now. I'm skeptical about their ability to establish competitive advantages, given their modest market presence in the highly competitive restaurant industry. This leaves me questioning their staying power.
However, for those seeking restaurant stocks with compelling growth potential, Dutch Bros and Cava could be promising additions to your watchlist. As discussed earlier, they each present qualities investors may find appealing.
Nevertheless, I believe evaluating valuation should be a top priority. Dutch Bros shares trade at a price-to-sales ratio (P/S) of 3.8, while Cava stock trades at 21.3.
Considering the aforementioned factors, if I had to pick the better company to invest in, I'd choose Dutch Bros based solely on valuation.
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Investors may find Dutch Bros and Cava appealing due to their strong growth potential and outperforming share prices in comparison to the S&P 500, making them attractive options for those seeking opportunities in the finance sector.
To make a more informed investment decision, it's crucial to consider factors such as valuation, as Dutch Bros has a lower price-to-sales ratio (P/S) of 3.8 compared to Cava's 21.3, which could potentially make Dutch Bros a better investment choice based on this financial metric.