Young Fast-Casual Chain Outperforms Coffee Giant in 2024
Cava Group, the rapidly growing Mediterranean food chain listed on the NYSE under the ticker CAVA, had a remarkable year in 2024, ending with an astonishing 162% increase. This impressive performance far surpassed that of Dutch Bros, another young restaurant chain trading under the ticker BROS, which rose by a respectable 65%. Is the additional confidence in Cava stock justified? Let's delve into a thorough comparison between these two companies and determine which one is the better buy today.
Current Performance
Both Cava Group and Dutch Bros are relatively new restaurant chains that have gained significant traction with their target markets. They have distinct themes, but both are growing rapidly and catering to diverse consumer preferences. To assess their performance over the past three quarters, let's examine their sales growth, comparable sales (comps) growth, net income, and store expansion.
Sales Growth and Comparable Sales
| Metric | Dutch Bros | Cava Group | | --- | --- | --- | | Q1 Sales Growth | 39% | 30% | | Q2 Sales Growth | 30% | 35.2% | | Q3 Sales Growth | 28% | 39% | | Comparable Sales (Year over Year) - Q1 | 10% | 4.1% | | Comparable Sales (Year over Year) - Q2 | 25% | 32% | | Comparable Sales (Year over Year) - Q3 | 18% | 45% |
Net Income and Store Expansion
Both companies have shown significant growth in net income, reflecting their efficiency and market share gains. Cava Group has been more aggressive with store openings, but its comps are less affected by new store additions due to the higher sales generated per restaurant.
Long-term Opportunities
Dutch Bros envisions a substantial increase in store count over the next decade, aiming for 4,000 stores. Cava plans to reach at least 1,000 stores by 2032. While both projections indicate robust growth, Cava's path seems more conservative due to its higher sales per restaurant.
Comps and Store Value
The comps metric is a crucial indicator of long-term value creation for these companies. As the number of stores in the comps group increases over time, so does their impact on total revenue. Both chains have made significant strides but Cava's strategy of targeting higher-income customers during inflation might contribute to its superior performance.
Valuation
Both stocks are not cheap according to standard valuation metrics like PEG ratio. However, they both operate below a PEG ratio of 1, suggesting potential value in the market. Dutch Bros is notably cheaper than Cava based on these and other ratios.
Conclusion
Cava Group's performance outshines that of Dutch Bros currently due to its better comps growth and target audience resilience during inflation. However, Dutch Bros presents a more affordable option with substantial long-term opportunities despite being a cheaper alternative to Starbucks. The choice between the two depends on individual investment strategies and risk tolerances.
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