CAVA

We rate CAVA GROUP, INC. (CAVA) as a Reduce with a composite score of 42.6/100 at a current price of $73.65. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (45th percentile) and momentum (42th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (21th percentile) and value (32th percentile) tempers our overall conviction. We assign a Narrow Moat rating (41/100), High uncertainty, and Poor capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

CAVA GROUP, INC. holds a top-quartile position (#0 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 42.6/100 places it at rank #3177 in our full 7,333-stock universe. At $7.4B in market capitalization, CAVA GROUP, INC. is a mid-cap player in the Retail Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 25%, though momentum at the 42th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 36% (-0.5pp vs sector) narrow to operating margins of 6% (+1.9pp vs sector) and net margins of 6.7%, yielding a gross-to-net conversion rate of 19%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $73.65, CAVA GROUP, INC. is trading at a premium to fundamental value. Our value factor score of 32/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 105.9x (a 394% premium to the sector median of 21.4x), EV/EBITDA of 59.7x (at a premium), P/B of 10.6x, P/S of 7.1x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to CAVA GROUP, INC.. Key risk factors include elevated market sensitivity (beta of 1.75), below-average price stability (32th percentile), elevated valuation multiple (P/E 105.9x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.75); below-average price stability (32th percentile); elevated valuation multiple (P/E 105.9x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 32th percentile and quality factor at the 45th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate CAVA GROUP, INC.'s capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — CAVA GROUP, INC. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, CAVA GROUP, INC. receives a Reduce rating with a composite score of 42.6/100 (rank #3177 of 7,333). Our quantitative framework assigns a Narrow Moat (41/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 34/100.

Our analysis does not support a constructive view on CAVA GROUP, INC. at this time. The combination of the current quantitative profile, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.