If Cava Group Shares Capture Your Interest, You Might Be Enticed by this Restaurant Stock as Well.
Cava Group (-0.13%) has been one of the most scorching restaurant stocks to possess this year. As of Nov. 12, the stock has skyrocketed an enormous 237%, way surpassing the S&P 500's modest year-to-date gain of 25%.
However, potential investors might worry that the stock is nearing its peak with a value that's merely too pricey. Cava trades at an outstanding 299 times its projected fiscal 2025 earnings (based on analyst predictions). If you're seeking a more reasonably-priced restaurant stock that also offers robust growth potential, take a closer look at Shake Shack (SHAK 2.96%).
Shake Shack is expanding rapidly with ambitious goals
Shake Shack serves "upmarket versions of traditional American favorites using only premium ingredients." Its well-known burgers, fries, and milkshakes have propelled its market-beating performance this year, with the stock climbing 76%. Despite having 552 establishments compared to Cava's 352, Shake Shack's market value of $5.5 billion represents only one-third of Cava's.
The company believes it's well-positioned to expand its operations. In a recent interview with CNBC, Shake Shack CEO Rob Lynch mentioned that the company intends to expand globally, and he believes the niche in which Shake Shack operates could allow it to dominate. He further mentioned, "I don't believe there is a competitor for Shake Shack. We refer to ourselves as being a part of the fine-casual movement; leading the fine-casual movement."
In its latest quarter (ended Sept. 25), the company reported revenue of $316.9 million, showing a 15% increase year-over-year. However, it did incur a loss of $11.1 million, which was primarily due to impairment charges and losses from the sale of assets.
With 200 of its locations outside the U.S. market, there's significant room for the business to expand both domestically and internationally.
The stock offers better value than Cava Group
Cava Group is the more popular and expensive stock of the two, but Shake Shack is the better option for growth investors.
If you wish to hop on the Cava bandwagon, you'll need to pay a substantial premium, and when the market's expectations are this high, there's little to no safety margin for investors if the company underperforms or has a disappointing quarter.
Is Shake Shack a better investment than Cava Group?
Both of these restaurant chains have been delivering impressive results and boast promising growth prospects. However, it's crucial not to disregard valuation because it can significantly impact your overall returns.
With Shake Shack, you're getting a top growth stock in the restaurant industry at a value that still leaves it with plenty of room to generate solid returns over the long term. It's the stock I'd choose right now.
Investors looking for a growth-focused restaurant stock with more reasonable pricing may find Shake Shack attractive. Despite its successful growth, Shake Shack is currently trading at a lower valuation compared to Cava Group, offering a potential safety margin if the company's performance dips or a quarter falls short of expectations.
