Despite the recent decrease in the number of companies going public due to a volatile stock market and economic uncertainty, Cava Group (NYSE:CAVA) successfully completed its initial public offering (IPO) in June. Investors are hopeful that the fast-casual Mediterranean food chain will emulate the success of industry leader Chipotle (NYSE:CMG), whose shares have returned more than 4,000% since its own IPO.
As of July 9, Cava had just 279 locations in the United States, compared to Chipotle's more than 3,200 stores. This suggests significant room for expansion. The company reported an 18.2% year-over-year increase in same-store sales in the fiscal second quarter, with 10.3% of this increase attributed to higher traffic. Combined with new store openings, total revenue grew by 62.4% year over year to $171.1 million.
The funds raised from its IPO have bolstered Cava's financial position. The company's cash and equivalents jumped from $39 million in December to $352 million in the latest quarter. This additional funding is particularly significant for Cava as it owns and operates all its stores, unlike the franchise model adopted by McDonald's (NYSE:MCD). The company is not rapidly burning cash; net proceeds from the IPO were approximately $339 million, and investments into the business were only about $25 million more than operating cash flow in Q2.
However, valuing Cava's stock is challenging due to its recent public status and limited data availability. Analysts estimate Cava's total revenue in fiscal 2023 will reach $720 million. With a market cap of $4.9 billion, this equates to a price-to-sales ratio (P/S) of 6.8. Analysts predict that Cava will grow revenue between 17% and 19% annually over the next several years.
In comparison, Chipotle's estimated sales growth trails slightly behind Cava's projections. However, Chipotle is already very profitable whereas Cava will likely need several more years to consistently generate earnings. Consequently, Chipotle's forward P/S ratio of 5.5 appears slightly more attractive.
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