Cava Shares Crash. Should Investors Buy the Stock on the Dip or Run for the Hills?
Shares of Cava Group (NYSE: CAVA) plunged after the Mediterranean-themed restaurant operator’s same-store sales growth slowed in its fiscal second quarter (ended July 13), missing expectations. The stock is now down nearly 40% year to date as of this writing.
Let’s dive into the company’s latest results and prospects to see if investors should buy the dip or steer clear of the stock.
After reporting double-digit growth in comparable-restaurant sales (comps) each of the past four quarters, Cava’s growth slowed considerably in its fiscal Q2. Comps edged up just 2.1% with guest traffic largely flat. That was well below the 6.1% increase that analysts were expecting, based on market intelligence site StreetAccount’s estimates, and a big slowdown from recent quarters.
Metric
Q2 2024
Q3 2024
Q4 2024
Q1 2025
Q2 2005
Comps growth
14.4%
18.1%
21.2%
10.8%
2.1%
Traffic
9.5%
12.9%
15.6%
7.5%
—
Price and product mix
4.9%
5.2%
5.6%
3.3%
2.1%
Data source: Cava Group.
The company started the quarter strong, but once it lapped the introduction of its popular grilled steak a year ago, growth slowed. In response, Cava plans to push forward with more menu innovations, including the introduction of chicken shawarma in the coming weeks and cinnamon sugar pita chips. It said tests of chicken shawarma in select markets went well, and it expects the new item to help drive comps.
Overall revenue for the quarter climbed 20% year over year to $278.2 million. It opened 16 new restaurants in the period, bringing its total to 398 locations, a nearly 17% increase compared to a year ago.
It entered two new markets during the quarter, in Pittsburgh and Michigan. Management now plans to open between 68 to 70 new locations this fiscal year, up from a prior forecast of 64 to 68. Long term, management’s goal is to reach at least 1,000 stores by 2032.
Its restaurant-level margins (RLMs) came in at 26.3% in the quarter, down slightly from 26.5% a year ago. RLMs measure how profitable a chain’s individual restaurants are before corporate costs, and they’re an important restaurant industry metric. The company’s RLMs just trail the 27.4% figure of Chipotle Mexican Grill despite having much lower scale than its larger rival.
On the profitability front, Cava’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 23% year over year to $42.1 million. The company also generated $98.9 million in operating cash flow in the quarter and free cash flow of $21.9 million.
Management lowered its full-year comps outlook for the year, taking it from 6% to 8% growth down to a range of 4% to 6% growth. But it maintained its 2025 adjusted EBITDA outlook of $152 million to $159 million, and its RLM margin forecast of 24.8% to 25.2%.
Image source: Getty Images.
In hindsight, with the restaurant industry’s comps growth slowing in general, combined with the lapping of the introduction of Cava’s highly popular grilled steak, it may not be that big of a surprise to see the chain’s comps growth slow dramatically. That said, it doesn’t take away from the fact that Cava is still a highly popular concept.
The company’s biggest opportunity is still its ongoing expansion. With fewer than 400 locations, it has a long growth runway that it is able to self-fund. These are also highly productive stores with an impressive average unit volume of nearly $3 million and top-tier RLMs.
Trading at a forward price-to-earnings ratio (P/E) of nearly 123 and a forward price-to-sales ratio (P/S) of 7 based on 2025 analyst estimates, Cava stock is not cheap. However, if the company gets to 1,000 store locations in 2032, it could be generating close to $4.5 billion in revenue with consistent mid-single-digit comps growth.
With Chipotle currently sporting a forward P/S ratio of 4.8, Cava stock has the potential to more than double over the next seven years if it were to trade at the same multiple that Chipotle does today. That’s a strong outlook, and the restaurant chain could still expand beyond that point.
As such, the stock’s year-to-date slump does present an interesting opportunity. Long-term investors can consider taking a starter position in Cava now and add more shares on future dips.
Before you buy stock in Cava Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cava Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $668,155!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,106,071!*
Now, it’s worth noting Stock Advisor’s total average return is 1,070% — a market-crushing outperformance compared to 184% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.
See the 10 stocks »
*Stock Advisor returns as of August 13, 2025
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and recommends the following options: short September 2025 $60 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Cava Shares Crash. Should Investors Buy the Stock on the Dip or Run for the Hills? was originally published by The Motley Fool
