CAVA Group, Inc.

Valuation: Premium Price for Premium Growth

CAVA trades at a P/E of 58.45 on trailing twelve-month earnings of $1.16 per share. That's a significant premium to the restaurant industry average of roughly 25-30x, but not unusual for high-growth fast-casual names during their expansion phase. Chipotle traded at similar multiples when it was scaling from 1,000 to 3,000 locations.

The price-to-book ratio of 8.9x reflects the market's valuation of CAVA's brand, growth pipeline, and restaurant-level economics rather than tangible assets. Book value per share stands at approximately $6.72, with total tangible asset value of $779.7 million against a market cap of $7.86 billion. The enterprise value is approximately $6.67 billion, yielding an EV/EBITDA multiple in the range of 40-45x on annualized Q3 EBITDA — expensive by any traditional measure.

The stock's 38% decline from its 52-week high of $108.98 has made the valuation somewhat more palatable. At the peak, CAVA was trading at over 90x trailing earnings. The current 58.45x multiple still prices in substantial growth, but the correction has at least moved the stock from "euphoric" to "optimistic" territory.

For investors comparing CAVA to the broader restaurant universe, the premium is clear across every metric. The bull case rests on CAVA's ability to grow into this valuation through rapid unit expansion and improving margins — a playbook that has worked for only a handful of restaurant concepts in history.

Earnings Performance: $1 Billion and Counting

CAVA's fiscal 2025 marked a transformative year. The company crossed $1 billion in annual revenue for the first time, with quarterly revenue demonstrating the rapid growth trajectory that has Wall Street so excited. Q1 fiscal 2025 (a 16-week period) generated $331.8 million in revenue, followed by $280.6 million in Q2 and $292.2 million in Q3 (both 12-week periods).

The Q4 results released today showed revenue rising 21% year-over-year, with same-store sales growth surprising analysts who had expected flattening trends. Management attributed the strength to strategic menu price increases and improving consumer sentiment — noting that diners appear to be "doing better this year" and moving away from the deal-chasing behavior that characterized the post-pandemic inflationary period.

Gross margins have shown meaningful improvement over the course of the year. Q1 gross margin was 25.3%, expanding to 26.6% in Q2 and leaping to 37.8% in Q3. This margin trajectory reflects both pricing power and operational leverage as CAVA's newer restaurants mature and reach full productivity. Operating margins followed a similar pattern: 4.7% in Q1, 7.0% in Q2, and 5.9% in Q3.

Net income was $25.7 million in Q1 (EPS $0.22), $18.4 million in Q2 (EPS $0.16), and $14.7 million in Q3 (EPS $0.12). The sequential decline in profitability despite revenue growth reflects the heavy investment in new restaurant openings — each new unit requires pre-opening costs that temporarily depress margins. This is the classic growth-restaurant trade-off: invest now for higher future returns.

Financial Health: Clean Balance Sheet Fueling Expansion

CAVA's balance sheet is a standout in the restaurant sector. The company carries zero long-term financial debt — the leverage ratios that appear in financial databases reflect operating lease obligations under ASC 842 accounting standards, not borrowings. With $282.9 million in cash and a current ratio of approximately 2.7-3.0 across recent quarters, CAVA has ample liquidity to fund its aggressive expansion plans without tapping debt markets or diluting shareholders.

The cash flow trajectory tells the real story of CAVA's operational maturation. Operating cash flow has risen dramatically: from just $6 million in fiscal 2022 to $97.1 million in fiscal 2023 and $161 million in fiscal 2024. Free cash flow turned positive at $52.9 million in fiscal 2024 after being deeply negative in prior years ($-41.7 million in FY2023, $-98.3 million in FY2022) — a clear sign that the business model is generating more cash than it consumes even while investing heavily in growth.

Capital expenditure has been substantial — $108.1 million in FY2024, $138.8 million in FY2023, and $104.3 million in FY2022 — reflecting the cost of building new restaurants. Each new CAVA location costs roughly $1.5-2.0 million to build out, and the company has been opening 50+ locations per year. The fact that free cash flow has turned positive despite this investment pace is a significant positive signal about unit economics.

Growth and Competitive Position: The Chipotle Playbook

CAVA's investment thesis centers on a simple but powerful comparison: it is attempting to do for Mediterranean cuisine what Chipotle did for Mexican food. The company operates a customizable bowl-and-pita format with fresh, health-forward ingredients — a concept that resonates strongly with younger consumers who increasingly prefer Mediterranean flavors over traditional fast food.

The competitive moat is still being built but shows promising foundations. CAVA has first-mover advantage in a category that has no dominant national player. While local Mediterranean restaurants and smaller chains exist, none has achieved the scale, brand recognition, or operational efficiency that CAVA is building. The company's vertically integrated supply chain — including its own dressing and dip production facility — provides margin advantages that would be difficult for competitors to replicate quickly.

Same-store sales growth remains positive, a critical metric for restaurant investors. The Q4 surprise on this front is particularly significant because analysts had been modeling for deceleration. The fact that CAVA is still generating positive comps while rapidly expanding its unit base suggests that new restaurants are not cannibalizing existing locations — the addressable market remains underpenetrated.

Restaurant-level margins have been improving as the concept matures. The Q3 gross margin of 37.8% approaches the levels achieved by best-in-class fast-casual operators. As the restaurant fleet scales and the company gains purchasing leverage with suppliers, there is a clear path to further margin expansion over the next several years.

The consumer spending backdrop is also favorable. Management noted in the Q4 release that consumers appear to be "getting tired of chasing meal deals" and are trading up to higher-quality dining options. If this trend holds, CAVA is well-positioned as a premium but accessible option that sits between traditional fast food and full-service dining.

Forward Outlook: Ambitious Growth Ahead

Earnings Day Context: What the Q4 Beat Means

Today's Q4 earnings release adds an important real-time data point to the CAVA investment case. The company beat on same-store sales growth — a metric that the market had been worried about as CAVA's comparison periods got tougher. The beat was driven by menu price increases, which is a double-edged signal: it demonstrates pricing power but also raises questions about traffic trends versus price-driven revenue growth.

The full-year $1 billion revenue milestone is psychologically significant for both the company and the market. It moves CAVA from "promising emerging concept" to "established growth restaurant brand" in the minds of institutional investors. This threshold often triggers inclusion in broader equity indices and attracts coverage from additional sell-side analysts — both of which can drive incremental demand for shares.

CAVA's stock was down 0.8% during the regular session at $67.80 ahead of the after-hours earnings release. The market's reaction over the coming days will depend on how investors interpret the balance between the revenue beat, the margin trajectory, and the forward guidance. In the fast-casual restaurant space, same-store sales growth is the metric that moves stocks — and CAVA just delivered on it when expectations were low.