What Happened?
Shares of mediterranean fast-casual restaurant chain CAVA (NYSE: CAVA) fell 6.3% in the afternoon session after analysts at William Blair lowered their earnings per share (EPS) estimates for the company's upcoming second quarter. The firm reduced its forecast for CAVA's second-quarter earnings to $0.13 per share from a previous estimate of $0.14. This revision signaled expectations of lower profitability and added to investor concerns regarding the stock's high valuation. CAVA traded at a forward price-to-earnings (P/E) ratio of over 156, a significant premium compared to its industry's average of about 21. Such a high valuation often indicated that investors expected strong growth, making the stock particularly sensitive to negative revisions like the one from William Blair.
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What Is The Market Telling Us
CAVA’s shares are extremely volatile and have had 30 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 10 days ago when the stock dropped 3.2% on the news that Morgan Stanley lowered its price target on the stock and another firm initiated coverage with a neutral rating. Morgan Stanley reduced its price target on the Mediterranean fast-casual chain to $107 from $115, although it maintained its "equal weight" rating on the shares. This suggests that while the firm sees the stock as fairly valued, its future price appreciation may be more limited than previously thought.
CAVA is down 25.1% since the beginning of the year, and at $86.28 per share, it is trading 42.8% below its 52-week high of $150.88 from December 2024. Investors who bought $1,000 worth of CAVA’s shares at the IPO in June 2023 would now be looking at an investment worth $1,971.
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