Cava Group Inc, a Mediterranean fast-casual restaurant chain, priced its initial public offering (IPO) at $22 per share, raising its planned valuation from a previously stated range of $1.5 billion to $2.45 billion.
The Washington-based restaurant chain is expected to start trading on Thursday on the New York Stock Exchange under the ticker symbol “CAVA.”
Cava said it sold 14.4 million shares, which at a price of $22 per share, raises nearly $318 million. At $22 per share, the company is valued at roughly $2.45 billion, based on an outstanding share count of more than 111 million shares.
In June, CAVA had estimated its IPO offering price between $17 and $19 per share. It raised its pricing expectations to a range of $19 to $20 per share.
Market watcher David Trainer described the Cava valuation as “ridiculous.”
“The Cava Group is priced to grow faster than Chipotle,” Trainer wrote in Forbes.
“When I use my reverse discounted cash flow (DCF) model to analyze the future cash flow expectations baked into Cava Group’s anticipated valuation, I can provide clear, mathematical evidence that the midpoint valuation of $19.50/share appears too high and offers unattractive risk/reward,” he added.
To justify even the midpoint of its IPO valuation, Trainer says his model shows Cava would have to grow revenue by 25% (vs. +13% in 2022) compounded annually for the next ten years (nearly 2x the projected industry growth rate through 2027).
In a statement, Cava said it plans to use the net proceeds from the offering to fund future new restaurant openings, with any remaining proceeds for general corporate purposes, which may include the repayment of its delayed draw term loans used to finance construction and capital expenditures related to its new production facility in Verona, Virginia.
In 2022, Cava posted net sales of $564.1 million, up 12.8% from the year earlier. However, its reported net loss was $59 million, wider than a net loss of $37.1 million in 2021.
Cava, which was founded in 2006, opened its first location in 2011 and now operates over 260 restaurants. It's breakneck growth has drawn comparison to Chipotle Mexican Grill (NYSE:CMG).
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive