Cava Group (CAVA 0.46%), the young fast-casual chain selling Mediterranean food, had an incredible 2024, ending the year up 162%. That’s more than double the performance of coffee chain Dutch Bros (BROS 1.80%), another young restaurant chain, which ended the year up a highly respectable 65%.
Is the extra dose of confidence in Cava stock justified? Let’s compare these two stocks and see which one is the better buy today.
Current performance
Each of these companies has a different theme, but they’re both fairly new restaurant chains that are rapidly growing and proving popular with their target markets. Let’s see how their sales growth, comparable sales (comps) growth, net income, and store growth stack up against each other over the past three quarters.
| Â | Dutch Bros | Â | Â | Cava Group | Â | Â |
|---|---|---|---|---|---|---|
| Â | Q1 | Q2 | Q3 | Q1 | Q2 | Q3 |
| Sales growth | 39% | 30% | 28% | 30% | 35.2% | 39% |
| Comparable sales growth | 10% | 4.1% | 2.7% | 2.3% | 14.4% | 18.1% |
| Net income (in millions) | $16.2 | $22.2 | $21. | $14 | $19.7 | $18 |
| New stores | 45 | 36 | 38 | 14 | 18 | 11 |
Data source: Dutch Bros and Cava quarterly reports. All rates are year over year.
Dutch Bros has 950 stores as of the end of the third quarter, while Cava has only 352. Dutch Bros’ stores offer a more limited menu of custom beverages and some food items, while Cava’s locations are full restaurants with higher-priced fare, and each one generates higher sales per unit.
Cava has been demonstrating stronger performance than Dutch Bros over the past two quarters, and it stands out with its higher comparable sales growth. That implies staying power and a concept that’s resonating with customers.
Long-term opportunities
Both of these companies see robust long-term growth opportunities, but they’re at different levels. Dutch Bros envisions operating 4,000 stores over the next 10 to 15 years, while Cava thinks it can reach at least 1,000 stores by 2032. That would mean quadrupling store count for Dutch Bros and tripling store count for Cava. Since each Cava restaurant generates higher sales, though, it can achieve similar growth from new stores with fewer openings.
The comps piece is an important part of the long-term equation, since over time, it adds a lot to the total. Over time, investors would want to see the comps number go up as a company has more stores in the comps group. Stores have to be open at last 15 months to be in that group, and if a company opens many stores per quarter, they add significant value to the comps total.
Valuation
Neither of these stocks is cheap according to popular valuation metrics, but they both trade at a price-to-earnings growth (PEG) ratio below 1, which implies they could still be good buys. Dutch Bros is much cheaper than Cava, according to these ratios and others.
CAVA PE Ratio (Forward 1y) data by YCharts. PE = price-to-earnings. PS = price-to-sales.
Which stock is the better buy?
Both of these companies are well-positioned for long-term growth. Customers like them, and they have substantial opportunities to open new stores and generate higher sales.
Cava is performing better right now. That could be because it targets a higher-income customer that’s still spending despite inflation. Dutch Bros is a cheaper alternative to Starbucks, but its mass consumer might be holding off on fancy coffee altogether right now.
However, Dutch Bros stock is much cheaper, presenting a better value. I would be concerned about how high Cava stock could go this year after its massive rise last year. There’s a lot of growth built into it already. Dutch Bros’ growth and opportunities are nothing to sneeze at, and I would choose Dutch Bros stock today.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Cava Group and Dutch Bros. The Motley Fool has a disclosure policy.
