Cava Stock Is Crumbling as Growth Slows. Time to Buy?

Fast-casual restaurant chain Cava (NYSE: CAVA) is starting to struggle against the same headwinds impacting the broader restaurant industry. The company missed analyst estimates for both revenue and earnings when it reported its third-quarter results on Wednesday, and it lowered its outlook for 2025.

Image source: Cava.

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Revenue was up 20%, but that was largely due to new restaurant openings. The company opened 17 new locations in the third quarter alone, which boosted the store count by 17.9% year over year. Meanwhile, same-restaurant sales grew by just 1.9%, and restaurant-level profit grew more slowly than total revenue. For 2025, the company now sees same-restaurant sales growth of 3% to 4%, down from a previous outlook of 4% to 6%.

Cava stock was tumbling in pre-market trading on Wednesday, adding to a long decline that began at the end of 2024. Prior to Cava's third-quarter report, the stock had shed about 66% of its value since hitting its peak. That number will likely rise on Wednesday as investors digest a disappointing earnings report.

With Cava stock down so much this year, is it time for value-conscious investors to dive in?

Plenty of room for growth, but there's a big risk

Cava operated 415 restaurants at the end of the third quarter. For comparison, industry giant Chipotle will open as many 345 new restaurants this year alone, adding to its more than 3,900 locations. If Cava remains a popular choice among consumers, there's room for many more locations in the U.S. The company is aggressively opening new locations, with plans for as many as 70 restaurant openings this year.

The key for Cava is to remain a go-to choice for its customers. Unfortunately, there's at least some evidence that the style of fast-casual restaurant that Chipotle pioneered and that Cava is aiming to perfect is on its way out in the hearts and minds of consumers. Warnings about "slop bowl" fatigue are popping up. There are a lot of fast-casual chains that offer variants of the same thing that Cava and Chipotle offer, and consumers appear to be shifting toward casual dining chains as prices rise.

Chipotle is having all sorts of problems. Comparable sales were barely positive in Chipotle's third quarter, and it expects a decline for the full year. Fellow "slop bowl" chain Sweetgreen also has a mess on its hands, with same-store sales plunging by 7.6% in the second quarter.

Is the popularity of Cava-style restaurants fading for good? Or is this just a temporary consumer reaction to rising prices? It's hard to say. If the former is the case, Cava's growth story takes a big hit.

Cava has a lofty valuation

Even after plunging this year, Cava stock is no bargain. Analysts expect the company to produce earnings per share of $0.52 this year, which puts the price-to-earnings ratio at nearly 100 based on Tuesday's closing price.

Cava's net income declined in the third quarter compared to the prior-year period, although that was largely due to differences in tax rates. Operating margin was 5.9%, down from 7.3% in the third quarter of last year. New restaurant openings will help drive solid revenue growth, but if comparable sales growth deteriorates further, more pressure could be heaped on the bottom line.

At the right price, it would be worth taking the risk and buying Cava stock. The restaurant chain is certainly popular with consumers, and it's already doing $2.9 million in sales per restaurant, which is just barely behind Chipotle. But at 100 times earnings and facing both macroeconomic headwinds and the possibility that the "slop bowl" style of fast-casual restaurant is losing steam, buying Cava stock does not look like a great idea.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Sweetgreen and recommends the following options: short December 2025 $45 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.