Below is my personal thesis based on my own research. And I do research… all the time… perhaps too much.
1. OVERVIEW & CATALYST
CAVA Group, Inc. (CAVA) owns and operates a chain of around 280 Mediterranean restaurants. The company offers salads, dips, spreads, toppings, and dressings. It sells its products through whole food markets and grocery stores. The company also provides online food ordering services. Cava Group, Inc. was founded in 2006 and is based in Washington, DC.
The company had a successful IPO in mid-June of 2023. Shares opened at $42 apiece on the NYSE, nearly double the IPO price of $22. Cava sold about 14.4 million shares in the offering, raising around $318 million.
However, the IPO Lockup Period Expiration is happening next week (12/12/2023), where a huge amount of insider shares will become available to trade on a thinly (recently averaging 1-1.3M shares/day) traded stock. Year-end tax benefits or not, no one wants to hold the bag as many early investors are likely to realize a relatively quick profit (initial pre-IPO shares were sold for $19-$20/share or cheaper).
Every time I was involved in situations where the individual/institutional investors would have to “HODL” their shares/coins, it never worked, not even once. Everything gets dumped the second it becomes possible.
As more investors try to realize their profits and there are minimal number of buyers, the stock might enter a free fall for a while. Also, other institutions would want to come in at a much lower level, so they will not interfere for a while. Eventually the stock will find its floor, but I expect it to be at much lower price point, possibly at $8-$12 range. I specifically chosen the Jan 19th puts to give this play some “breathing” room.
2. VALUATION
IMO, by every measure the company is currently is overvalued. With the last quarter revenue of $175.55 million and negative net income, the company’s current free float valuation stands at over $4B with a P/E ratio of over 460! CAVA is expected to have about $850M of revenue in 2024 with about 9% EBITDA margins, but only 1.5% net income margins, which at best would make it a $1B company and that is everything goes perfect by the end of next year, which again would equate to about $9/share (in the future).
As initial IPO hype has dies down, the stock (peaking at around $58/share) seems to continuously trend down (similar to Sweetgreen Inc., which started IPO at around $53/share a couple of years ago and got all the way down to $6.50/share, before recovering to a current $10.50/share). Ironically, Sweetgreen ($SG) was founded in 2007 also in Washington, DC.
The trajectory repeating Chipotle’s success stock-wise, even long-term is unlikely for multiple reasons (including Product & Competition section below).
Portfolio managers at Artal Group, T. Rowe Price, Swan Hospitality, Revolution Growth, Capital International Investors or all other major $CAVA shareholders (as well as company principals) that control tens of millions of shares in total should trip over each other to offload at least a portion of their holdings (as I am sure, like me they see the stock dwindling down to sub-$10 price range). This can create a temporary death spiral and bring the price down very quickly.
3. PRODUCT & COMPETITION
I have personally been a Carnivore now for several months. I am down 48lbs (and counting) and feeling much better than before. I have studied the Carnivore diet in great detail every day for the past 7 months, listened to hundreds of lectures and read thousands of testimonials. It is blatantly clear to me that I have been eating completely wrong my whole life and there’s an overwhelming amount of data to show that Carnivore (or at least Ketovore) is the way to eat. I am continuously sharing my research with my family and closest friends, but I do “meat” (couldn’t help myself) lots of resistance – it’s a process.
As the Carnivore movement gains more and more popularity, I expect a major shift from plant- based “healthy” choices to animal product outlets, restaurants and chains. Please check out thousands of video lectures and interviews on YT of Drs. Anthony Chaffee, Shawn Baker, Ken Berry and many others and see for yourself. This could be one of the most important decisions for you and your family.
That said, I source, grind, grill and season all of my meat and fish myself to ensure the hyper-optimal quality of my nutrition. However, when travelling I occasionally buy meat-based dishes at Chipotle, QDOBA, Shake Shack, McDonalds, Burger King, Chick-fil-A and other food chains and restaurants. I would strip out all the carbs and vegetables and consume just the meat/fish. While that’s not ideal, it suffices once in a while and most Carnivores would agree with me. And by once in a while, I mean once or twice per month out of 60 (or so) meals.
I’ve looked into CAVA’s menu and found nothing that any Carnivore would find appropriate for human consumption, let alone anything being “healthy”. While some dishes do contain chicken, typically birds are considered barely above eating cardboard in the Carnivore world, as they are typically kept in horrible conditions, fed absolute (often GMO) garbage (including cuts of other birds), and don’t have multiple stomachs (e.g. cows) to process their own (modified) food properly. So, technically it’s still considered meat, but it carries very marginal nutritional value. All other items include carbs (converts to sugar), sugar (feeds cancers) and vegetables (thousands of various low-grade toxins), none of which our ancestors ate in any significant quantities.
So, while other chains and restaurants are not particularly great by any stretch of imagination either, at least you can find meats and fish there (if you must eat out), while CAVA would be my least favorite choice. I’ve read many reviews and people’s reactions are mixed between the price and quality of CAVA’s food (seemingly more negative than positive). Like many other places they are fighting an uphill battle. Rebranding to a radically opposite diet would not work well either.
Furthermore, there are other chains out there with somewhat similar offerings on top of hundreds of thousands of general restaurants on every corner. Their prices are not particularly great and margins are quite thin, like with most restaurants.
4. CONCLUSION
I expect a bloodbath in the next few weeks. The stock already started to crack. “Don't sugar coat it, Taj” (Van Wilder, 2002) seems an appropriate quote here.
Questions and comments are welcomed.
POSITIONS: $CAVA 01/19/24 $30 & $35 puts, considering short $CAVA shares
TL;DR: Become a Carnivore and buy Jan 19 2024 $30/$35 puts on $CAVA and short $CAVA shares
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