CAVA Group, Inc. went public today and is making many headlines. Let’s explore why. 👇
First, CAVA is a Mediterranean fast-casual restaurant brand that’s become very popular in the U.S. It has roughly 263 restaurants nationwide, generating $203.1 million in revenue during the first quarter of 2023. It operates in 22 states and Washington D.C., with 82% suburban, 14% urban, and 4% specialty locations. 🥙
For all intents and purposes, it’s similar to Sweetgreen and Chipotle, but with more healthful food and bold, satisfying flavors.
The primary reason it’s making headlines today is because it’s one of the first major companies to test an initial public offering (IPO) market that’s been frozen for the last eighteen months. Many other brands have delayed their IPO or identified other strategic options to avoid raising money in a weak environment. ⏸️
However, the U.S. stock market has rebounded significantly since October, led by the technology sector. But skepticism remains about whether we’re in a new bull market. As a result, investors are looking at IPO performance to identify the market’s current appetite.
And boy, was there an appetite…
$CAVA shares priced at $22 per share, giving the company a $2.5 billion valuation. The company initially sought to price shares between $17 and $19, raised the range to $19-$20, and ultimately priced at $22. However, even that left some money on the table as shares opened nearly double that at roughly $41. 💰
The strong opening should be a go-ahead signal to other restaurant chains considering going public. For example, Brazilian steakhouse Fogo de Chao and Korean barbecue chain Gen Restaurant Group have confidentially filed regulatory paperwork.
The second reason investors are looking at CAVA is that they’re wondering if they’re a fast-casual restaurant success story or a dud. There’s been a stark contrast between Chipotle’s performance and some of the smaller competitors like Sweetgreen, Noodles & Company, and El Pollo Loco Holdings.
Given the direct similarities between CAVA and Sweetgreen, some investors are concerned it could have the same fate, falling roughly 80% from its post-IPO highs. Others suggest its model and offering are unique enough to differentiate it from its competitors. 🥘
Time will tell. But for now, the market appears to be hungry for more IPOs. We’ll see if Wall Street delivers them. 😋