Every growth investor dreams of coming across the next Nvidia or Palantir stock. These stocks aren't just beating the market; they're absolutely crushing it, and investors are hungry for the next artificial intelligence (AI) stock.

But it's not only AI stocks that are crushing the market right now. Cava Group stock is another relatively new stock that burst onto the scene and continues to trounce the market.

CAVA Total Return Level data by YCharts

Let's meet Cava, see why investors love it, and whether or not it makes sense to join in the excitement.

Hello, Cava

Cava went public in 2023 in a year when there was a dearth of initial public offering (IPO) activity, at least in comparison to 2021, when the space trend pushed up the IPO to a record 1,035.

So it wasn't surprising that investors got excited about what could be the next big thing. And so far, Cava is proving them right. It's growing by leaps and bounds, becoming profitable, and has robust future opportunities. What else could an investor ask for?

For the most recently reported quarter, which was the 2024 third quarter, revenue increased 39% year over year. Most impressively, comparable sales were up 18%, which was a feat in the high-inflation, low-activity environment. It really speaks to customer satisfaction and bodes well for Cava's future and expansion opportunities.

Because growth has been so strong, Cava has already reached profitability at scale, and it was profitable from its first quarter as a public company. In the 2024 third quarter, average unit volume rose from $2.6 million to $2.8 million, and net income increased from $6.8 million to $18 million year over year. Free cash flow was $23.4 million.

On top of its excellent performance, it has robust opportunities. It only operates 352 stores right now, but it envisions having 1,000 in operation by 2030. Tripling store count should create incredible revenue-generating potential. Management raised its 2024 full-year guidance after the third-quarter report and expects to open about 57 stores for the full year. To reach 1,000 stores over the next five years, it will have to accelerate openings.

Is it time to say goodbye?

Cava is going through an exciting expansion and offers incredible potential. There's one little problem, though, which is that with all of the market enthusiasm, Cava stock has become incredibly expensive. At the current price, Cava stock trades at a forward, one-year price-to-earnings ratio of 159. That's a wildly high valuation.

There are risks beyond the valuation, but the valuation heightens these risks even more. Because so many expectations are built into the price, if the company doesn't meet them, it could face a dramatic fall. Cava is still young, and the path from 350 to 1,000 restaurants isn't a simple one. To meet that goal, it will have to open up stores at a much higher rate and prove successful in varied regions. It's also facing competition from other new cast-casual chains like SweetGreen and old favorites like Chipotle Mexican Grill. Chipotle recently invested in a chain called Brassica that competes directly with Cava's Mediterranean concept.

I don't mean to sound pessimistic, and to be honest, I think Cava has a solid future ahead of it. I'm concerned, however, about the near-term upside.

Wall Street is on my side here; the average analyst consensus price is only 8% higher than today, and more than half of covering analysts say to hold at this price.

Five years from now, I expect there to be a lot of Cava restaurants across the U.S. and the company to be reporting solid growth. However, I would wait for a more attractive entry point. Cava stock is crushing the market right now, but I'd be hesitant to say it could keep that up long term at the current price.