Fast casual dining has become one of the most popular options for diners over the last several years.
Two leading fast casual restaurant chains are Mediterranean-inspired CAVA Group (CAVA 0.46%) and burrito specialist Chipotle Mexican Grill (CMG -2.45%).
So far in 2024, Cava stock is up 98% while shares of Chipotle have gained 25% -- each handily topping the S&P 500.
Let's dive into the business results of Cava and Chipotle and assess which stock might be the better buy for long-term investors.
Analyzing Cava
When it comes to analyzing restaurant businesses, metrics such as new store openings and same-store sales can be useful.
During Cava's first fiscal quarter of 2024 (ended April 21), the company opened 14 net new restaurants. This represented 23% growth year over year, and brought Cava's total restaurant count to 323.
The company's revenue soared 30% year over year during the fist quarter to $256.3 million, while same-store sales rose by 2.3%.
Despite a macroeconomic environment battling stubborn inflation, Cava has also showcased a commitment to strong unit economics. For the period ended April 21, Cava reported net income of $14 million compared to a loss of $2.1 million last year.
Moreover, the company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) essentially doubled year over year during the fist quarter, while free cash flow swung to positive $4.7 million compares to cash burn of $13.4 million last year.
All things considered, Cava's financial profile is quite impressive. However, with the stock surging 98% so far in 2024, investors need to assess the company's valuation.
CAVA PS Ratio data by YCharts
As seen in the chart above, Cava's price-to-sales (P/S) multiple of 11.7 is considerably above Chipotle. In a way, this could make some sense. Chipotle is a much more mature business to that of Cava. However, the valuation disparity between the two restaurant stocks is hard to look over.
Let's dig into Chipotle's business and discern if Cava's premium valuation is deserved.
Image Source: Getty Images
Analyzing Chipotle
For the quarter ended March 31, Chipotle reported revenue of $2.7 billion -- an increase of 14.1% year over year. While this level of revenue growth is only about half as much as Cava's during the first quarter, Chipotle is clearly a much larger business considering its revenue is more than tenfold compared to Cava.
Where Chipotle really sets itself apart from the competition is same-store sales and profit margins.
During the first quarter, Chipotle's comparable restaurant sales rose 7% -- more than triple that of Cava.
Moreover, the company's restaurant level operating margin was 27.5%. By comparison, Cava's restaurant level profit margin was 25.2%.
At the end of the first quarter, Chipotle boasted nearly 3,500 locations -- roughly ten times that of Cava. Additionally, the company's average restaurant sales of $3.1 million was notably higher than Cava's $2.6 million.
The bottom line
The trends explored above suggest that Chipotle has superior unit economics to that of Cava. It's a much bigger company and outperforms Cava in just about every important financial and operating metric.
My suspicion is that a lot of capital has poured into Cava stock with the underlying thesis that the company might be the next Chipotle. While this has some merit, it is going to take many years to determine if Cava will eventually reach the size and scale of Chipotle.
All the while, Chipotle isn't exacting giving investors reasons to think its own growth could begin decelerating or plateau. While money can be made owning both Cava and Chipotle stock, I see one clear winner here: Chipotle.
I think Chipotle represents a best in class brand among restaurant stocks, and the company's impressive financial profile and key performance indications suggest that the growth narrative should stay in tact for years to come.
