Cava Group, a prominent Mediterranean fast-casual restaurant chain, has garnered attention in recent years. However, Hydron Capital's meticulous research and analysis on successful and unsuccessful restaurants have led to a lack of confidence in Cava Group's performance. In this short report, we delve into the factors contributing to this assessment and explore the forecasted value of Cava Group's stock by year-end.
Right now, CAVA Group's market cap is 4.8B dollars. This is purely ridiculous compared to industry peers. For instance, a company like Sweetgreen is valued at 1.35B, and possesses higher digital ratings, twice the social presence, and slightly less storefronts than CAVA. Not to mention both of these companies started off in Washington, D.C.
In terms of financials, in 2021, CAVA lost $37.4 million dollars. In 2022, CAVA lost $59.0 million dollars. They are growing operating expenses "substantially in the foreseeable future" according to their latest investor filing. They have also stated we may not achieve or maintain profitability in the future. For instance, their revenue needs to grow 30%+ Y0Y to start producing strong figures. If you look at Texas Roadhouse's stock you can see why lower locations in strategic areas has paid off substantially. CAVA is solely trying to go on every corner in the U.S.A. and then just hoping they can increase revenue per store locations.
The restaurant industry is subject to various regulations, including labor laws, food safety standards, and health regulations. Compliance with these regulations can pose additional costs and operational challenges for Cava Group. Moreover, increasing labor costs and potential changes in minimum wage laws could put pressure on the company's profitability.
Considering the aforementioned factors, Hydron Capital's projection for Cava Group's stock value by the 2023 year-end is $21.50. This estimate reflects our assessment of the company's potential risks and challenges, which may impact its overall market performance.
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