top partner

for CFD

What happened

Shares of Cava Group (NYSE: CAVA) fell last month as a solid earnings report wasn’t enough to overcome broader valuation concerns around the recent restaurant initial public offering (IPO).

As a result, the stock finished the month down 22% according to data from S&P Global Market Intelligence.

As you can see from the chart below, the stock slipped through the first half of the month on concerns about the economy and the reaction to its first earnings report.

^SPX data by YCharts

So what

Stocks dipped broadly in the first half of the month as concerns about a potential recession seemed to restrain the market. After a boom through the first half of the year, a number of companies pointed to an uncertain macro environment in their earnings report, and economic data showed that higher interest rates seem to be slowing the economy.

Cava, a Mediterranean fast-casual chain that went public in June, has traded mostly in line with the broad market since its debut as investors are still unsure how to value the company.

In its second-quarter report on Aug. 15, Cava actually delivered strong results, but the stock sold off as expectations for the stock may have been too high.

Same-restaurant sales were up 18.2% in the quarter, driving overall revenue up 62.4% as the company is aggressively opening new stores, adding 16 locations in the quarter, and updating former Zoe’s Kitchen locations. Revenue of $172.9 million topped the consensus at $163.2 million.

On the bottom line, it continued to deliver strong results with a restaurant-level profit margin of 26.1%, up 400 basis points from the year ago, and it reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $21.6 million, or a margin of 12.5%.

On the bottom line, the company posted net income of $0.21 per share, according to generally accepted accounting principles (GAAP), much better than expectations of a loss of $0.02.

Cava stock rose after hours on the news but gained just 1% the day after the report. The following day, the stock fell 10% as the broad market fell on concerns about the weakening economy, which would impact a restaurant chain like Cava.

Now what

Guidance for the full year was solid as the company called for same-restaurant sales growth of 13% to 15% and a restaurant-level profit margin of 23%. It also sees adjusted EBITDA of $62 million to $67 million.

Cava is pricey, but it’s hard to ignore its rapid growth and profitability. Given the macro-level challenges, investors seem to be treading carefully with the stock for now.

10 stocks we like better than Cava Group
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Cava Group wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of August 28, 2023

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Read the full story: Read More“>

Blog powered by G6

Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.

For any inquiries, please contact [email protected]