3 Reasons Investors Should Choose Chipotle Stock Over Cava Group

Chipotle Mexican Grill (CMG 1.85%) It has emerged as one of the strongest restaurant stocks in recent years. Its success has resulted in profits more than 110x over the past 18 years, with a subsequent 50-for-share split planned.

some hope kava group (Kava 1.54%) This is a second chance stock for those who missed out on Chipotle. Like Chipotle, it is a fast-growing restaurant chain that specializes in healthy fast food.

Still, investors have good reason to believe Cava won’t follow in Chipotle’s footsteps. Before assuming that Cava is the next Chipotle, investors should consider three factors that explain why they might choose Chipotle over Cava Group stock.

1. Chipotle’s proven track record

The success of Chipotle stock, which dates back to its 2006 IPO, is something investors should not ignore.

In fact, investors may not realize exactly what the company has achieved. For every Chipotle, there are a ton of stocks on the market: Red Robin Gourmet Burger It has lost value through its transaction history. Investors should be careful, as unproven stocks like Kava could suffer the same fate.

Chipotle also gained popularity by basing its food on the popular Mexican food genre. It also showed that a focus on fresh ingredients could deliver quick, popular meals without compromising on health benefits. The fact that it was the first major fast food chain to succeed with this approach likely helped boost Chipotle’s stock price over time.

2. Remaining growth potential

What’s more, it may surprise investors that Chipotle still has more growth potential despite its nearly 3,500 restaurants.

First of all, investors should consider Cava’s stated objectives. The company plans to expand from 323 locations operating as of the end of the first quarter of fiscal 2024 (ending April 21) to 1,000 locations by 2032, which would roughly triple its restaurant count.

Chipotle, on the other hand, is planning 7,000 locations in North America. This is approximately double the current figure.

But unlike Cava, which has never announced any plans for international expansion, Chipotle has locations in Canada and three European countries. If successful in Europe, Chipotle can grow further in absolute numbers. and Percentage term. McDonald’sFor example, it operates in more than 100 countries.

3. Valuation comparison

Also, those who wish Cava was a “second chance Chipotle” are in good company if valuation is any indicator. Kava stock has more than doubled in value since its IPO, and for a newly profitable company, a P/E ratio near 1,000 does not meaningfully reflect its valuation. Still, Cava is an expensive stock by almost every measure.

Its price-to-sales (P/S) ratio is nearly 13, significantly higher than Chipotle’s 9 P/S ratio. This discrepancy is particularly noteworthy because Chipotle has generally maintained an expensive valuation. Considering that Cava has a lot to prove, choosing Chipotle over Cava is not only cheaper, it’s also a lot less risky.

Stay with Chipotle

Ultimately, when considering companies and stocks, investors who missed out on Chipotle’s early gains would be better off choosing Chipotle over Cava, even though it is no longer a smaller company.

Of course, the feeling that Cava is the next Chipotle makes sense amid the rapid growth and success of healthy fast food. Nonetheless, Cava still has to prove its worth in a highly competitive industry.

Moreover, its goals are not as ambitious as Chipotle’s. That said, Chipotle may still outperform Cava in absolute and percentage terms. In this situation, investors would likely be better off choosing Chipotle, too, given that they would have to pay a higher value for Kava.