We recently compiled a list of the 12 Best New Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where CAVA Group, Inc. (NYSE:CAVA) stands against the other new stocks.
US public markets continue to brace themselves for a 2025 resurgence, which should be led by interest rate cuts, pent-up investor demand, and a growing backlog of IPO expectations. As per PwC, there are over 700 unicorns in the private market as a result of the subdued IPO activity over the previous 3 years.
Many IPO candidates, which also include some unicorns, have utilized this time to improve and strengthen their finances and transition to sustainable growth models. Apart from this, pressure continues to mount on private equity fund managers to return capital after an elongated exit dry spell, reported PwC.
IPO Market Analysis – A Quick Recap
As per PwC, the traditional IPO market saw its gradual comeback in 2024, with proceeds garnered ~50% higher than in 2023 and ~4x the amount raised in 2022. The IPO activity was broad-based, with strong participation from sectors such as technology, life sciences, consumer markets, and financial services. Stock prices of this year’s traditional IPOs appreciated ~29%, surpassing the S&P 500 index’s return of ~27% on a YTD basis (ended 26th December 2024). This highlights the strength, investor interest, and traction in new offerings.
PwC went on to add that IPO activity saw a strong increase in 2024, with 61 traditional IPOs garnering more than $26.4 billion YTD, which was in line with the combined total number of IPOs in 2022 and 2023, which witnessed 28 and 35 IPOs, respectively. Despite this improvement, IPO activity remained short of early anticipations and historical levels of activity. This is because several IPO candidates decided to stay on the sidelines as they waited for a clearer economic picture after the U.S. presidential elections.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Lies Ahead?
The continued rate cuts and a stable policy environment should boost investor confidence, which can help create more favorable market conditions. PwC gave a 60% probability of a “soft landing” scenario and a 20% probability of an optimistic “no landing.” Notably, both of these scenarios offer a supportive environment for IPOs.
As per Lynn Martin, president of the NYSE, 2025 year will be an active one for the IPOs. Also, Reuters highlighted that reduced interest rates and inflation slowdown should act as catalysts for new listings. Furthermore, the expected easing of regulations under the new Administration paints a positive picture of the deal activity in capital markets. Bloomberg reported that, as per Goldman Sachs, the number of IPOs in the tech sector is expected to more than double next year.
Our Methodology
To list the 12 Best New Stocks to Buy According to Hedge Funds, we used a screener to shortlist the companies that went public in the past 2 years. Next, we narrowed the list to the ones having high hedge fund positioning. Finally, the stocks were ranked in ascending order of their hedge fund sentiment, as of Q3 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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CAVA Group, Inc. (NYSE:CAVA)
Number of Hedge Fund Holders: 32
CAVA Group, Inc. (NYSE:CAVA), which made its public debut on NYSE on 15th June 2023, owns and operates a chain of restaurants under the CAVA brand in the US.
Wall Street analysts are optimistic about CAVA Group, Inc. (NYSE:CAVA)’s expansion strategy. Furthermore, analysts have pointed out potential catalysts for future growth including the continued expansion of the restaurant network, further menu innovations, enhancements to digital ordering experience, and potential international expansion opportunities. CAVA Group, Inc. (NYSE:CAVA)’s expansion strategy emphasizes increasing its geographic footprint and enhancing its existing store performance.
As per industry experts, CAVA Group, Inc. (NYSE:CAVA)’s plan to open new units across various markets offers a clear path for revenue growth. By carefully choosing new locations and optimizing its store format, CAVA Group, Inc. (NYSE:CAVA) can tap into underserved markets and capture a larger share of the fast-casual dining segment.
CAVA Group, Inc. (NYSE:CAVA)’s focus on digital ordering and delivery services also places it well to adapt to dynamic consumer preferences and expand customer base beyond traditional dine-in patrons. As CAVA Group, Inc. (NYSE:CAVA) scales, it can benefit from economies of scale in supply chain management and marketing efficiencies, potentially resulting in margin expansion and improved profitability.
Next Century Growth Investors, LLC sees a material upside to CAVA Group, Inc. (NYSE:CAVA)’s stock on the back of new store growth rate and same-store sales growth. Here’s what the firm said in its Q1 2024 investor letter:
“CAVA Group, Inc. (NYSE:CAVA) is a fast-casual restaurant chain serving authentic Mediterranean cuisine, featuring customizable bowls and pitas. CAVA currently owns and operates >300 stores, and the company targets a 15% plus new store growth rate. The intermediate goal is to have 1,000 stores by 2032 with plenty of opportunity to grow beyond that level. The company already delivers solid restaurant-level margins >20% and they believe 3-5% same-store sales growth is achievable over time. As the business matures, they should be able to leverage G&A expense which should lead to strong earnings growth over many years.”
Overall CAVA ranks 9th on our list of the best new stocks to buy according to hedge funds. While we acknowledge the potential of CAVA as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CAVA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
