We recently published a list of Jim Cramer Says You Should Buy These 10 Stocks. Since CAVA Group Inc (NYSE:CAVA) ranks 10th on the list, it deserves a deeper look.
Jim Cramer last week talked about the decline of tech stocks after the latest CPI report, saying investors “abandoned” tech stocks like “rats from the sinking ship.”
“It was titanic! They took their money and went all in on small and medium-sized companies we call the Russell 2000 because we got a much softer than expected consumer price index.”
Cramer said that the latest CPI number shows inflation “has been beaten” and interest rates are “coming down.” The CNBC host said if we keep getting positive data, he won’t be surprised to see not one but two or three rate cuts this year.
Cramer wondered how major tech companies could fall on the low inflation numbers, and answered his own question by saying that sometimes in the backdrop of lower bond yields stocks of companies that “need lower rates” can suddenly rise.
“What happened today always happens when rates plunged,” Cramer said.
However, Cramer said that there isn’t enough positive data available yet to keep supporting this rally of stocks that benefit from lower rates, adding that such short-term rallies last for about three days. Cramer predicted that big tech stocks will be back after a “few more plunging days.”
For this article we watched several latest programs of Jim Cramer and picked 10 stocks he’s bullish on. 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: 26
Jim Cramer has been bullish on restaurant chain CAVA Group Inc (NYSE:CAVA) lately and in a latest program reaffirmed his positive outlook on the stock. Over the past one month Cava shares have pulled back 6%, but Cramer thinks you should not “panic.”
“Don’t panic, understand that they’re coming down, just as a sector rotation.”
Last month, CAVA Group Inc (NYSE:CAVA) reported upbeat Q1 results and hiked full-year guidance. CAVA Group Inc (NYSE:CAVA) now sees 2024 restaurant comparable sales growth of 4.5% to 6.5%, compared with the consensus estimate of +4.5%. Adjusted EBITDA guidance was increased to $100 million to $105 million from a prior outlook for $86.0 million to $92.0 million. CAVA Group Inc (NYSE:CAVA) average unit volume (AUV) has impressed investors while its restaurant-level profit margins, guided to 24% for 2024, are also upbeat given the current market environment.
CAVA Group Inc (NYSE:CAVA) shares have gained about 124% so far this year and the stock’s P/E ratio is now 224, triggering valuation concerns. While CAVA Group Inc (NYSE:CAVA) has reported closed to 30% YoY sales growth over the past couple of quarters, Cava bears say the company might not be able to sustain its comparable sales growth down the road as comp sales growth is easy to achieve during early growth stages. They also say most of CAVA Group Inc (NYSE:CAVA) store footprint spans rich neighborhoods with high population density, and as CAVA expands its store footprint to other areas its profit from growth might moderate. The stock’s forward P/E ratio of 370 is outlandishly higher than industry average of 16.65. Average Wall Street price target on the stock is $87, below its current price of $91.
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 10th on Insider Monkey’s list titled Jim Cramer Says You Should Buy These 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.