Cava Group (CAVA 1.87%) was a sensation on Wall Street when it went public just a year ago as one of the only exciting initial public offerings in a dry year. It has been compared to the restaurant mega-chain Chipotle Mexican Grill (CMG 0.31%) for its healthy fast-casual food and prices.
But is that a fair comparison? And stacked up against each other, which stock is the better buy today?
Is Cava the next Chipotle?
Cava is a small but fast-growing chain operating throughout the U.S. It had 309 restaurants as of the end of 2023, with plans to enter new markets and open another 50 in 2024.
What's exciting about Cava is that if its concept is catching on, it can turn into a powerhouse chain like Chipotle. And considering the latter's success, that's a premise investors would find awfully attractive. Here's the chance to get in early and reap the gain of owning a huge-opportunity stock. Chipotle has gained more than 500% over the past 10 years, and who wouldn't want to get in on that?
Cava is demonstrating high sales growth, which isn't surprising for a young company expanding quickly. Revenue increased 60% year over year in 2023.
What's more surprising is its strong growth in comparable-restaurant sales (comps) and profitability. Comps increased 18% year over year in 2023, and net income was $13.3 million after a $59 million loss last year. If Cava can keep that up, it can continue to grow quickly and create tremendous shareholder value.
Even Chipotle isn't the next Chipotle
Chipotle churns out revenue and profit increases regularly. Customers love its fresh food at mid-range prices, and it's been reporting superb performance despite the inflationary environment.
Revenue increased 14% year over year in the 2024 first quarter, with a 7% increase in comps. Its operating margin expanded from 15.5% last year to 16.3%, and earnings per share (EPS) rose from $10.50 in the 2023 first quarter to $13.01.
It opened 47 new stores for a total of nearly 3,500, and it sees the opportunity to double that total in North America. About 300 stores are targeted to open in 2024.
In more recent news, management said that it's closing Farmesa, the salad and bowl concept it opened last year. It had only one location. It's not the first time Chipotle has closed a new brand concept. It has ended several other ones, such as Shophouse Asian Kitchen in 2017. In other words, it's not an easy concept to replicate.
It depends on what kind of stock you're seeking
Chipotle is known to be an expensive stock. It pretty much always trades at a premium valuation because it's so reliable for growth. Cava, though, is incredibly expensive, even compared with Chipotle.
CAVA PE ratio (forward 1 year); data by YCharts; PE = price to earnings.
Which one is the better buy depends on what kind of stock you're looking for right now. If you want a high-growth stock, even with heightened risk, Cava is your pick. If you're looking to buy more of a no-brainer for steady growth you can count on, you should buy Chipotle.
Now, I realize that might not be the either/or choice readers were looking for. It is the truth, in my opinion, but I don't want to leave you hanging. So I'll tell you that if I had to choose between the two stocks today, I would pick Chipotle Mexican Grill. I definitely invest in growth stocks, even with some risk, but I need to see a few more quarters of success with Cava. It also has a very high valuation.
As of today, I would take Chipotle and its track record and continued opportunity instead of Cava.
