You would be better off searching elsewhere for investors seeking the type of growth that Starbucks embodied in its earlier years. (Photo : by Mario Tama/Getty Image)
In the past, Starbucks has seen significant stock market success.
In the 1990s, the firm effectively invented the contemporary coffeehouse idea, and many rivals, including big chains and independent coffee shops, have since replicated the pattern.
Starbucks' market worth has grown to tens of billions of dollars because of Howard Schultz's core innovation of introducing espresso drinks to the American market and customizing the experience to suit American tastes. This move also helped to establish Starbucks as a global brand.
But it seems like Starbucks is having trouble these days. Over the past four years, the stock has lagged the S&P 500, comparable sales growth has been sluggish, and Starbucks' reputation has suffered as a result of a campaign for unionization that has forced some outlets to close.
You would be better off searching elsewhere for investors seeking the type of growth that Starbucks embodied in its earlier years. Cava Group is another excellent restaurant stock to think about.
The Next "Hit" in Stocks?
Despite being a publicly listed company for less than a year, Cava is demonstrating the power of a far longer-established restaurant business. The company has a successful business model, robust comparable sales, an ambitious expansion plan, and growing operating margins at the restaurant level.
There are some similarities between Cava, a Mediterranean fast-casual restaurant, and Chipotle. Similar to Chipotle, Cava's menu consists mostly of bowls and rolled-up pita sandwiches that mimic burritos.
Given that 36% of the fast-casual chain's revenue came from internet orders last year, it is also well-represented in the digital space. Cava's potential is demonstrated by its other results. Last year, it expanded 72 stores and saw a 60% increase in revenue to $717.1 million. Thanks to the acquisition and rebranding of Zoe's Kitchen, the firm currently runs over 300 locations.
Comparable sales increased by 18% over the previous year, and the company reported average unit volumes of $2.6 million, indicating strong consumer traffic to its restaurants and promising development for the business going forward.
In short, Cava's development narrative is also beginning to take form. increased from $12.6 million to $73.6 million in adjusted profits before interest, taxes, depreciation, and amortization (EBITDA) during the quarter. Operating profit at the restaurant level increased by over 450 basis points to 24.8%.
The restaurant business is straightforward and competitive. Businesses with successful, well-liked business models-like Starbucks and Chipotle-tend to succeed, and Cava has the potential to become another industry giant since it has plenty of space for new locations and its brand is clearly connecting with customers.
For instance, it recently launched its first restaurant in the Midwest, in Chicago. Additionally, Cava has a bit of a wild card up its sleeves. Ron Shaich is the creator of Au Bon Pain and Panera Bread, two early leaders in the fast-casual sector. Cava failed to locate Shaich. He discovered Cava since Cava was one of the company's original investors, having bought stock when there were just a handful open outlets.
A growing fast-casual brand would appear to benefit greatly from having Shaich on board, given his success with Panera and Au Bon Pain.
Lastly, Cava presently trades at a price-to-sales ratio of 5.5, which is comparable to Chipotle's. Given its potential for growth, it is also valued fairly.
It's obvious that Cava has the momentum to give investors significant profits. Although the restaurant business is not one where success happens quickly, Cava is well-prepared thanks to its well-liked food and ideas, robust internet channel, and Chairman Ron Shaich's leadership.
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