Why Cava Stock Skyrocketed In Its Public Debut
Shares of Mediterranean restaurant chain Cava Group (NYSE: CAVA) skyrocketed this morning as soon as shares started trading on the open market. The market for initial public offerings (IPOs) has been slow in 2023. But Cava's success today may suggest that investors' appetites are improving. As of 1:30 p.m. ET, Cava stock was up 93% from where its IPO shares priced.
Investors see several things in Cava that are desirable for a restaurant stock. First, the company believes there's room for over 1,000 locations by 2032, whereas it only had 263 locations as of April. Moreover, annual sales per location -- otherwise known as average unite volumes (AUV) -- are high at around $2.5 million.
Because Cava has high AUV, it's able to leverage fixed costs, and that unlocks strong restaurant-level profitability. Its restaurant-level profit margin was 25% in the first quarter of 2023. For comparison, restaurant-level operating margin for Chipotle Mexican Grill was 25.6% in the first quarter of 2023. And Chipotle stock has been an amazing investment.
Source Fool.com
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