What in the world happened to Cava Group (NYSE:CAVA)? Just yesterday, it was enjoying a multi-day rally as analysts all over the spectrum were actively comparing it to Chipotle (NYSE:CMG), and in the most glowing terms. Now, the rally has broken, and Cava Group shares plunged over 8% at one point in Thursday afternoon’s trading.
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Cava Group looked like a Cinderella story out of nowhere. The restaurant chain, which specializes in fast-casual style Mediterranean food, saw its share price better than double just since its IPO last month. Moreover, the stock’s magnificent run-up isn’t a sign that it’s overpriced by several analysts’ reckoning. Piper Sandler said as much specifically, and Stifel noted that there are several good reasons for Cava to carry premium pricing. First on the list was unit count growth potential, as well as average unit volume. Those, coupled with a likelihood of solid upward momentum going forward, should have been justification enough.
However, one analyst may have seen this downturn coming. David Trainer, CEO of New Constructs, called Cava stock not only “overvalued” but also “the next WeWork.” Trainer went on to elaborate that Cava’s IPO never “should actually ever happen” and that the whole thing was “…a ruse to trick unsuspecting retail investors into buying what is a terrible business.” Strong words, but Trainer backed them up by noting that Cava was “burning cash flow” and that the “…cash flow burn is only going to get even worse.”
Trainer’s opinion is strong, all right, but defies consensus. With six Buy ratings and two Hold, analyst consensus calls Cava Group stock a Strong Buy. However, with an average price target of $45.86, Cava Group stock also comes with a 4.36% downside potential.
