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Consider these restaurant stocks before buying into Cava’s IPO

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Cava is a fast-food restaurant with a Mediterranean theme that operates in 22 states and offers customers Mediterranean food options such as pitas, bowls, and salads with fillings like falafel, tzatziki, and lamb. It has recently been very successful among consumers as it made a surprising debut in the stock market, experiencing a 117% increase in its stock price.

This debut demonstrated potential momentum for Initial Public Offerings (IPOs) as it included 14.4 million shares and valued the restaurant at $2.5 billion. Investors showed a lot of interest in this exciting IPO amidst market recovery; however, it might be wiser for investors to consider other options in the restaurant sector rather than diving into Cava’s stock at these levels.

Cava’s IPO

The debut of Cava Group in the stock market was impressive but somewhat exaggerated. It has been a while since we have seen such fervor in an initial public offering. For this reason, the restaurant came to the rescue because this year, the IPO market has faced challenges due to persistent inflation, rising interest rates, and the fear of a recession.

However, although the stocks seem to have returned to an upward trend, likely, the successful start of Cava will not end well for investors who bought shares at nearly $40 each.

Investing in companies that have had such an explosive debut is not recommended, even though they are currently performing well. It might be prudent to wait a bit before investing in Cava and let the stocks return to more realistic prices. Initial public offerings can deflate as quickly as they inflate.

Therefore, over time, a better opportunity might arise to enter the market because it is unlikely that the IPO price will be reached soon.

In this way, some alternatives could be considered.

Domino’s Pizza

During Cava’s market debut, Domino’s shares experienced an increase of over 6% thanks to timely improvement by Stifel. The firm raised its recommendation from “Hold” to “Buy”, indicating that sales could stabilize as food delivery figures begin to recover in the coming year.

Several factors contributed to this improvement, including the implementation of enhancements in the ordering app and a review of the loyalty program in the fall. These innovations are expected to drive sales performance, increase order conversion rates, and strengthen targeted marketing efforts.

Furthermore, the decrease in essential product costs such as cheese, wheat, chicken breast, bacon, and gasoline is expected to contribute to the profitability of franchises. Additionally, during a recent meeting with franchisees, improvements in service quality were discussed, and customer satisfaction was prioritized.

Domino’s Pizza’s delivery channel represents a significant growth opportunity, and the stabilization of delivery sales after the COVID-19-related surge will be a crucial factor in driving the company’s performance.

The company has a “Moderate Buy” rating, with twelve “Buy”, eight “Hold”, and two “Sell” ratings. The average target price for Domino’s shares is $347.05, implying a 4.7% gain for the next year.

Yum! Brands

In general, Yum! Brands operate as a restaurant services company divided into segments such as KFC, Pizza Hut, Taco Bell, and Habit Burger Grill.

Last week, the company’s CEO, David W. Gibbs, sold company shares totaling $531,603.08. The transaction occurred on June 15 and was made public through a SEC filing. Following the sale, Gibbs now owns 57,325 shares of the company, valued at approximately $7,846,072.75.

During Friday’s trading hours, Yum! Brands shares rose by $1.34, reaching $140.54. The trading volume was 544,992 shares, compared to the average volume of 1,602,352 shares. Over the past 12 months, the company’s shares have fluctuated between a low of $103.96 and a high of $143.24.

Yum! Brands has a market capitalization of $39.36 billion, a price-earnings ratio of 32.75, and a price-earnings-growth ratio of 2.18. The company has also announced a quarterly dividend and has been subject to institutional transactions.

Regarding Yum! Brands’ financial results, in the last quarter, reported earnings per share of $1.06, below analysts’ estimates. The company’s revenues amounted to $1.65 billion, surpassing consensus estimates. Revenues increased by 6.3% compared to the same quarter last year. Market analysts expect the company to achieve earnings per share of $5.04 during the current year.

Several hedge funds have been buying and selling Yum! Brands shares in the first quarter. Some market analysts have raised their target price for the company’s shares, giving it a “Buy” or “Overweight” rating.

In conclusion

In the face of potential economic issues, restaurant stocks are an excellent option as a protective measure. Cava is currently the hot item in the market due to its doubling in value in one day; however, it is not currently an accessible option for everyone.

Other options in the market can be considered from companies that compete with Cava, such as Domino’s Pizza and Yum! Brands. Which option do you prefer? What other good options for investing in restaurants do you currently know?

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(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)

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