CAVA Analysis: CAVA Group's 20% Post-Earnings Rally Confronts a Valuation Reality Check

At $82.47, CAVA trades at a trailing P/E of 72.3x based on annual EPS of $1.14. By virtually any traditional valuation measure, the stock is expensive. The price-to-book ratio stands at 8.9x, while the enterprise value-to-EBITDA ratio reached a staggering 266x in Q4 2025 — reflecting the quarter's compressed profitability.

The price-to-sales ratio of 25.3x places CAVA firmly in the upper echelon of restaurant stock valuations. For context, Chipotle Mexican Grill — the company CAVA is most frequently compared to — traded at roughly 8-10x sales at a comparable stage of its growth journey.

The free cash flow picture is similarly stretched. FCF per share was just $0.02 in Q4, as capital expenditures consumed 93% of operating cash flow. On an annualized basis, CAVA generated roughly $0.67 in FCF per share across FY2025 — implying a free cash flow yield of less than 1%. Investors are clearly paying for future earnings power, not current cash generation.

CAVA's fiscal 2025 revenue totaled approximately $1.18 billion across four quarters, a substantial figure for a restaurant chain still in its rapid expansion phase. However, the quarterly trajectory tells a more complex story.

Revenue declined from a peak of $331.8 million in Q1 to $275.0 million in Q4, reflecting seasonal patterns typical of the restaurant industry. More concerning was the margin trajectory: operating margins compressed from 6.6% in Q1 to 3.1% in Q4, while net margins fell from 7.7% to 1.8%.

Q4's diluted EPS of -$0.18 was the weakest quarter of the year, dragging down the full-year figure. By contrast, Q1's EPS of $0.22 benefited from a favorable tax adjustment. The operating margin squeeze reflects rising labor and food costs, pre-opening expenses for new locations, and the inherent margin dilution that comes with rapid unit growth.

Same-restaurant sales growth of just 0.5% in Q4 was the quarter's most significant data point. After quarters of high-single-digit comps that drove the initial enthusiasm around the stock, the deceleration raises questions about whether CAVA's unit-level economics can sustain investor expectations.

Despite the margin compression, CAVA's balance sheet remains solid. The current ratio of 1.74 in Q4 provides comfortable liquidity, and the company carries no interest-bearing debt on a net basis — the debt-to-equity ratio of 0.60 primarily reflects operating lease liabilities rather than traditional borrowings.

Cash per share of $2.44 translates to roughly $283 million in total cash, providing a meaningful war chest for continued expansion without needing to tap capital markets. The zero-interest-expense line item is notable for a company opening dozens of new restaurants each year.

Capital expenditure intensity remains high, as expected for a restaurant chain in growth mode. Capex per share of $0.32 in Q4 — roughly $37 million — reflects the investment required to open new locations, remodel existing ones, and build out supply chain infrastructure. For FY2025, total capex consumed the vast majority of operating cash flow, leaving minimal free cash flow.

The key financial risk is not leverage — it's execution. CAVA must demonstrate that new units can achieve the same unit economics as mature locations while simultaneously managing food cost inflation and labor market tightness.

CAVA's investment case rests almost entirely on its new restaurant pipeline. Management has guided for approximately 17% unit growth in 2026, continuing the aggressive rollout that has taken the chain from a regional concept to a national brand.

The bull case is straightforward: CAVA's Mediterranean cuisine occupies an underserved niche in fast-casual dining, with a healthier positioning than most competitors and a format that has demonstrated strong consumer appeal in new markets. If the company can sustain 15-20% annual unit growth while maintaining restaurant-level margins above 20%, the long-term revenue compounding could be substantial.

Analyst revenue estimates project CAVA reaching approximately $625-804 million in quarterly revenue by 2030 — implying annual revenue of $2.8 billion or more, more than doubling from current levels. The growth is expected to come primarily from new units rather than same-store sales acceleration.

The bear case centers on valuation and execution risk. With same-store sales growth guided at just 3-5% for 2026, CAVA is essentially a unit-growth story at a time when its stock is priced at over 70x earnings. Analysts at Seeking Alpha have noted that 'much growth is already priced in' at the current trailing price-to-sales ratio, and the Sweetgreen comparison is instructive — that rival fast-casual chain reported disappointing sales immediately after CAVA's upbeat results, highlighting the unevenness of the sector recovery.