Cava Made A Sparkling Stock Market Debut

Cava Made A Sparkling Stock Market Debut
Paul Allison, CFA

6 months ago2 mins

What’s going on here?

Cava might be known as a cheaper alternative, but this restaurant chain’s New York Stock Exchange debut last week was pure, unadulterated luxury.

What does this mean?

Cava’s sort of like Chipotle, but with Mediterranean food. So investors, all too aware of how many Americans make a habit of paying extra for guac, were salivating at the chance to buy into what could be the next go-to lunchtime spot. That’s why investment bankers had already lifted the opening price of $22 a couple of times before the stock started trading, and that doubled over the course of the day. Cava swaggered off with a $5 billion valuation by the end of it, nearly nine times its sales last year. And get this: that’s around double Chipotle’s valuation, and Cava hasn’t ever turned a profit. But with only 260-ish stores around the US versus Chipotle’s 3,000-plus, the fledgling’s future will hinge on whether barbacoa-hooked Americans develop a hankering for falafel.

Cava stock market debut

Why should I care?

For markets: Timing is everything.

Cava’s stock price might seem excessive, a bit like starving investors ordered way more than they could eat. But initial public offerings (IPOs) can be like that: there usually isn’t much information around these new firms, which makes gauging a fair price tricky. Investors, then, often go off the general market mood. And this year, the S&P 500 is up 15%, the Nasdaq 100 nearly 40%, and Chipotle – Cava’s Mexican lookalike – almost 50%.

S&P 500
Source: Google FInance

The bigger picture: Party like it’s 2023.

Today’s market has more than a faint resemblance to the millennium bubble: the artificial intelligence buzz is mirroring the turn-of-the-century internet frenzy, and tech stocks are flying like they were back then. The IPO market, though, is distinctly flatter. While Cava’s marks an $8 billion running total in the US this year, that’s way behind 2021’s $154 billion – and a whole world away from the champagne-worthy $284 billion in 1999.

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