CAVA's Surge: Optimistic Outlook Clashes with DeepValue's Cautious Stance

What happened

CAVA shares surged on management's forecast of a return to strong same-store sales, signaling a potential rebound after recent deceleration. The DeepValue report highlights that same-restaurant sales slowed from 13.4% in 2024 to approximately 2% in 2025, with flat traffic and margin compression, casting doubt on the sustainability of this optimism. Despite the upbeat outlook, CAVA trades at high valuation multiples of ~57x P/E and ~66x EV/EBITDA, which embed ambitious growth assumptions not yet supported by recent performance. This forecast may be an attempt to reset expectations after previous guidance cuts, but it lacks concrete evidence of operational improvements in a challenging macro environment. Investors should critically assess whether this surge is justified or merely a reaction to hopeful rhetoric without fundamental backing.

Implication

The immediate price surge reflects market optimism, but CAVA's valuation remains elevated at 57x trailing earnings and 66x EV/EBITDA, pricing in perfection amid decelerating trends. Recent same-store sales have slowed sharply to around 2% with flat traffic, and restaurant-level margins are guiding down, indicating underlying stress in the business model. Without clear signs of traffic recovery or margin stabilization, the upbeat outlook risks disappointment, potentially leading to further multiple compression. The DeepValue report's 'POTENTIAL SELL' rating and base case implied value of $65 suggest limited upside from current levels, emphasizing execution risk. Investors should await upcoming earnings and guidance for verification, considering trimming exposure if trends don't materially improve to avoid downside from inflated expectations.

Thesis delta

The news introduces a positive catalyst with management forecasting improved same-store sales, potentially hinting at a turnaround. However, the core thesis of high valuation and execution risk remains unchanged, as recent data shows persistent deceleration and margin pressure. A shift in thesis would only occur if subsequent quarters demonstrate sustained same-store sales growth above 3-4% and margin recovery, which are not yet evident.