After Leaping 25% CAVA Group, Inc. (NYSE:CAVA) Shares Are Not Flying Under The Radar

Despite an already strong run, CAVA Group, Inc. (NYSE:CAVA) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days were the cherry on top of the stock's 317% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, given around half the companies in the United States' Hospitality industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider CAVA Group as a stock to avoid entirely with its 17.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for CAVA Group

What Does CAVA Group's Recent Performance Look Like?

CAVA Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on CAVA Group will help you uncover what's on the horizon.

How Is CAVA Group's Revenue Growth Trending?

CAVA Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. Pleasingly, revenue has also lifted 69% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 21% per year over the next three years. That's shaping up to be materially higher than the 11% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why CAVA Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On CAVA Group's P/S

Shares in CAVA Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that CAVA Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Hospitality industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware CAVA Group is showing 1 warning sign in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.