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CAVA's Per-Restaurant Stock Value Outshines Chipotle's

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Cava Group, Inc. logo is displayed on a smartphone screen

Key Points

  • Chipotle stock may have been the darling of the restaurant sector lately, but there's a new company making a splash. 
  • CAVA is now worth more than 20% more (on a per-restaurant basis) than Chipotle, and there's a good reason.
  • Analysts see double-digit EPS growth ahead as the company has broken the positive free cash flow mark.  
  • 5 stocks we like better than Chipotle Mexican Grill

Markets are now looking more into shares of CAVA Group Inc. NYSE: CAVA, not because it’s small but because it’s growing. Most seeking consumer discretionary sector opportunities may try to copy one of Wall Street’s sweethearts: Bill Ackman. Through his hedge fund, Pershing Square, Ackman decided that Chipotle Mexican Grill Inc. NYSE: CMG was worth his investors’ capital.

The problem for smaller retail investors lies in timing and size. Chipotle has now had an incredible run, outperforming the broader S&P 500 by over 6,000% since its initial public offering (IPO) in 2006, bringing the company’s market capitalization up to $89.9 billion. With earnings per share (EPS) projections set at 20.3% growth for the next 12 months, Chipotle is still considered a growth stock but not as attractive as CAVA has become.

Following the same business model, with its menu being one of the few differences, CAVA gives investors a path to follow in Chipotle’s footsteps and potentially deliver a couple of thousand percentage points of return for those investors willing to stick with it in the long run.

CAVA's Second Generation Success: Lessons Learned from Chipotle's Mistakes

Chipotle’s massive growth may have been a blessing, but as every Wall Streeter knows, there are no free lunches. The company’s growth came with a cost, and customers were handed the bill to pay.

Chipotle Mexican Grill Today

Chipotle Mexican Grill, Inc. stock logo
CMGCMG 90-day performance
Chipotle Mexican Grill
$3,427.82
+62.36 (+1.85%)
(As of 06/18/2024 ET)
52-Week Range
$1,768.64
$3,463.07
P/E Ratio
73.15
Price Target
$3,201.19

The company’s quick growth made it hard to keep operations and other quality measures airtight, which is why Chipotle has been subject to several health complaints, which haven’t improved over the years. The most notable of these accusations came in 2015 when Chipotle was accused of being responsible for E. coli outbreaks.

But that wasn’t all 2015 had in store. Norovirus and Salmonella accompanied E.coli that year; once washed out of Chipotle’s system, these food-borne illnesses returned in 2017 and 2018. Even after these sour years, Chipotle still falls short in several other metrics.


Chipotle Mexican Grill MarketRank™ Stock Analysis
Overall MarketRank™
3.82 out of 5
Analyst Rating
Moderate Buy
Upside/Downside
6.6% Downside
Short Interest
Healthy
Dividend Strength
N/A
Sustainability
-1.96
News Sentiment
0.48mentions of Chipotle Mexican Grill in the last 14 days
Insider Trading
Selling Shares
Projected Earnings Growth
20.27%
See Full Details

In January 2024, Chipotle fell behind in the chlorine levels measured in its dish machine. This mistake could escalate into bacterial growth and other risks for the company’s location. Here’s how CAVA has learned from its predecessor’s mistakes.

Early profits for CAVA have one focus in mind for management: to reward shareholders in any way possible. Up to $35 million were deployed into a new Virginia-based facility, which focuses on the latest pasteurization technology to retain the brand's sanitation and quality standards as high as possible.

Conscious Investments at CAVA: Driving High Market Regard and Investor Confidence

This level of consciousness by management allowed the stock to drive its key performance indicators (KPIs) beyond peers like Chipotle.

CAVA Group Today

CAVA Group, Inc. stock logo
CAVACAVA 90-day performance
CAVA Group
$95.39
+1.45 (+1.54%)
(As of 06/18/2024 ET)
52-Week Range
$29.05
$96.93
P/E Ratio
232.66
Price Target
$81.50

On a per-restaurant basis, CAVA is now worth $30.3 million, above Chipotle’s $24.7 million. This significant discrepancy underscores how vital CAVA’s growth is and has been. Because CAVA is only a $10.3 billion company, a $70 billion blow to Chipotle can allow investors to tap into a multi-year life-changing run.

Wall Street analysts expect the company to see EPS growth of 35.3% in the next 12 months, above Chipotle's 20.3% projections. However, are there any reasonable factors that can justify the company's rapid pace of future growth?

Looking at past history can help investors understand why these analysts have become so bullish about CAVA's future. CAVA's first quarter 2024 earnings results show a 30.3% jump in net revenue. This figure drove the company's first-ever positive free cash flow (operating cash flow minus capital expenditures) of $4.7 million.

CAVA Group MarketRank™ Stock Analysis
Overall MarketRank™
2.57 out of 5
Analyst Rating
Moderate Buy
Upside/Downside
14.6% Downside
Short Interest
Healthy
Dividend Strength
N/A
Sustainability
N/A
News Sentiment
0.78mentions of CAVA Group in the last 14 days
Insider Trading
Selling Shares
Projected Earnings Growth
35.29%
See Full Details

When newer companies hit the positive free cash flow mark, they tend to command higher regard from investors looking for a value deal. CAVA’s latest figure is likely to keep growing. What drives more free cash flow? Scale, and speaking of which, CAVA grew its restaurant count by 14 over the quarter and by 60 over the year.

Because CAVA is now worth much more per restaurant than Chipotle, the only way to normalize this metric is to boost the number of CAVA locations. Knowing this, management boosted its 2024 guidance regarding restaurant openings, where a prior 48-52 range looks more like 50-54 today.

More than that, management boosted its expected restaurant profit level up 23.7% to 24.3%. These profit margins aid in the stock’s path to match Chipotle’s return on invested capital (ROIC) rate of 15.1%, while CAVA’s ROIC grew to 2% from negative 5.2% in 2022.  

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Should you invest $1,000 in Chipotle Mexican Grill right now?

Before you consider Chipotle Mexican Grill, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Chipotle Mexican Grill wasn't on the list.

While Chipotle Mexican Grill currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Gabriel Osorio-Mazilli
About The Author

Gabriel Osorio-Mazilli

Contributing Author

Value Stocks, Asian Markets, Macro Economics

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
CAVA Group (CAVA)
2.5698 of 5 stars
$95.39+1.5%N/A232.66Moderate Buy$81.50
Chipotle Mexican Grill (CMG)
3.8268 of 5 stars
$3,427.82+1.9%N/A73.15Moderate Buy$3,201.19
Compare These Stocks  Add These Stocks to My Watchlist 


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