KaVo Group (NYSE:KAVA) Last year, the stock was a breakout winner as the market capped the Mediterranean fast-casual restaurant chain. Companies now generate numbers reminiscent of Chipotle Mexican GrillA leader and pioneer in fast casual, Kava's average unit volume, or average sales per restaurant, is already approaching chipotle levels.
However, for much of 2024, KaVo's stock price retreated following its third-quarter earnings report in mid-November, which appeared to be due to valuation issues as its results were strong. . Even after this month's rally, the stock is trading 17% lower than its previous peak.
At one level, the stock does look expensive at over $200, but if you look closely at the numbers, you might find that Cava isn't as expensive as you think. As you can see from the chart below, analysts have been quick to revise their earnings estimates for the company, suggesting that they have been underestimating the company's estimates.
Analysts' consensus forecast for 2024 earnings has tripled over the course of the year, and they are likely to be undervaluing the stock through 2025. The 2025 consensus call is for earnings per share to rise from $0.50 to $0.64.
If Cava continues to deliver strong comparable sales growth -- comps were up 18.1% in the third quarter -- and continues to open new restaurants, it will likely build on the forecast.
However, there's another reason why Cava Stock isn't as expensive as it looks. The chain remains small, with just 352 locations as of the end of the third quarter. Compare that to Chipotle's more than 3,000 locations. Cava aims to open more than 1,000 restaurants by the end of the decade, but the chain will likely expand well beyond that in the long run.
Given its recent results, there appears to be plenty of room for growth, and margins should expand as its operations scale. The story of KaVo isn't just about a high stock price.
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