CAVA Group Stock Recovery Has Faltered: Will Earnings Spark A Rebound?
CAVA Group (NYSE:CAVA), the popular Mediterranean restaurant chain, has suffered a harsh reversal and moved into a technical bear market after plunging by 23% from its highest point this year. With its first-quarter earnings looming, will the stock bounce back?
CAVA Group To Release Q1 Earnings On May 19
CAVA Group stock plunged to $43.50 in November last year, and then started a major rally that pushed it to $98.8 in April. These gains extended after the company published its financial results, which showed that its revenue growth continued in the fourth quarter.
The revenue jumped by 21.2% in Q4 to $272.8 million as it opened 24 new restaurants during the quarter. Its same restaurant sales jumped to 0.5%, while its annual revenue rose to $1 billion for the first time ever. It also benefited from its investment in digital, with its sales rising by nearly 40%.
Most analysts boosted their CAVA stock forecast after the strong report and as the company continued expanding its footprint. UBS hiked its target from $75 to $85, while Citigroup hiked from $75 to $92. Benchmark, the most optimistic boostded the target to $110.
The average estimate among 26 analysts is that CAVA's business continued doing well in the first quarter. They expect the report to show that its revenue jumped by 26% in Q1 to $418 million, with its earnings-per-share slipping slightly to 17 cents.
Valuation Concerns Remain
Still, while most analysts are bullish on the CAVA stock, there are concerns that its valuation is stretched. It trades at 142x forward earnings, much higher than the consumer discretionary sector's median of 16.
Chipotle Mexican Grill (NYSE:CMG), which dominates the Mexican segment, has a multiple of 29. Starbucks (NYSE:SBUX) has a forward multiple of 52, while McDonald's (NYSE:MCD) has 22.
As such, the company will need to publish strong numbers that beat estimates substantially. It will also need to provide strong forward guidance that maps out how it intends to continue justifying its hefty premium.
CAVA Stock Has Formed A Double-Bottom Pattern
Technicals are sending mixed signals on what to expect when the company publishes its financial results this week. On the negative side, the stock has sunk below the 50-day and 100-day moving averages, signaling that bears have prevailed.
On the other hand, it has formed a double-bottom pattern at $72.45, its lowest level in March and this month. This price is notable as it coincides with the 50% Fibonacci Retracement level.
Therefore, there is a possibility that the stock will bounce back after earnings. If this happens, the chart suggests that it may move to the 50-day moving average at $83. However, losing the double-bottom level at $72.45 will invalidate the bullish outlook and point to further downside.
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