We recently published a list of Jim Cramer October Calls: Top 10 Stocks. Since CAVA Group Inc (NYSE:CAVA) ranks 8th on the list, it deserves a deeper look.
Jim Cramer in a latest program on CNBC talked about the ills of “complacency” in investing and how sticking to a specific narrative costs investors money. He was criticizing negative analyst reports that keep downgrading stocks.
“We always hear how the bulls are being complacent and ignore downside risk. We almost never hear that the bears are being complacent and missing out on terrific opportunities, which I find to be absurd. Nobody does complacency like the bears. Remember, last night I spent a lot of time talking about how we had a slew of downgrades yesterday that I did not like, and stocks reacting to negative news already. Today, they seem like fortuitous notes that would end up costing you money if you listen to them.”
Cramer said that some analysts like to “take aim” at long-term winners and scare people out of some “amazing gains.” This, Cramer believes, is “downright wrong.” He said that even if investors want to sell a stock based on a downgrade, they should wait for it to “bounce” before pulling the trigger.
For this article we talked about 10 stocks Jim Cramer is talking about during his programs on CNBC. With each company we have mentioned the number of hedge fund investors. Why are we interested in 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).
CAVA Group Inc (NYSE:CAVA)
Number of Hedge Fund Investors: 33
Answering a question about restaurant company CAVA Group Inc (NYSE:CAVA) in a latest program, Jim Cramer said:
“You’ve got to hold Cava. And if it comes down, I want you to be able to buy more. It’s one of the great new concepts that we’ve seen in this market.”
Over the past year CAVA Group Inc (NYSE:CAVA) is up about 300% and the stock is trading at a forward P/E of over 200. What makes this restaurant stock so special?
It’s a fast-casual chain offering Mediterranean-inspired meals and has built its reputation on fresh, healthy ingredients and a mix of dine-in and takeaway options. In the second quarter, the chain reported a 35% rise in revenue year over year, with same-store sales up 14.4%, helped by a 9.5% increase in guest traffic. Its growth is bolstered by moves into new areas, including Chicago.
For 2024, some analysts project the company revenue growth in the mid-twenties percentage range. Management has indicated the possibility of stronger results in the latter half of 2024, which factors into the company’s valuation discussion.
Following strong second-quarter results, CAVA Group Inc (NYSE:CAVA) increased its EBITDA guidance by nearly 10% at the top end, expecting around $115 million. This values the stock at 104 times forward EBITDA. With an expected same-store sales growth range of 8.5% to 9.5% projected by the company, the valuation comes into question. Even McDonald’s hasn’t traded above 60 times free cash flow over the past decade.
Next Century Growth Small Cap Strategy stated the following regarding CAVA Group, Inc. (NYSE:CAVA) in its first quarter 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 Group Inc (NYSE:CAVA) ranks 8th on Insider Monkey’s list titled Jim Cramer October Calls: Top 10 Stocks. While we acknowledge the potential of CAVA Group Inc (NYSE:CAVA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an 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.
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Disclosure: None. This article is originally published at Insider Monkey.
