Goldman Sachs just told you what to buy (most people missed it) (From Behind the Markets)

Shares of CAVA Group Inc. (NYSE: CAVA) gained 3% the day after the company delivered a solid beat on the top and bottom lines in its Q1 2026 earnings report. 

The headline numbers were tasty. Adjusted earnings per share (EPS) of 20 cents beat the expectations of 17 cents. Revenue of $438.27 million beat forecasts for $418.46 million and was up 32.2% year-over-year (YOY).

Same-restaurant sales (SRS) were up 9.7%, with foot traffic growth of 6.8%. This is notable at a time when many fast-casual restaurants are reporting declining foot traffic. CAVA also opened 20 net new restaurants during the quarter, which elevated the store count by about 20% YOY.

A Different Way to Assess Consumer Health

The report comes at a time when investors are searching for direction about the health of the consumer, particularly at lower income levels.

That may not be as relevant for CAVA. While the company doesn’t explicitly market to a single demographic, research shows that CAVA's primary customer segments skew young and affluent, with Millennials and Gen Z driving over 60% of foot traffic and a median household income above $100,000, aligning with the brand's premium fast-casual positioning.

However, the report may still present a statement about consumer health. CAVA is a category-defining Mediterranean fast-casual brand that competes in the health and wellness food category. This aligns with millennials and Gen-Z consumers who are looking for healthy options in the fast casual space.

A Victim of Its Own Success?

If there was one blemish in the report, it was that the adjusted EPS was about 10% below the 22 cents per share it recorded in Q1 2025. By itself, that’s not very notable. The company maintained its YOY profit margin of 25.1%. However, YOY EPS remains a metric for investors to watch going forward.

The company added its first-ever seafood item to the menu. The Pomegranate Glazed Salmon performed in line with test expectations. But popularity has its price, and management warned that the item will be a margin headwind for the remainder of the year. However, by 'headwind, ' the company means it maintained its prior guidance for Restaurant-Level Profit Margin.

One justification for the earnings outlook is the company’s artificial intelligence (AI) buildout. On the earnings call, management noted that the company has completed CavaCore, its modern data platform that will provide a unified, scalable foundation for managing and using data across the business, including leveraging emerging AI capabilities.

On the rest of its metrics, the company raised its guidance, which explains the market's reaction after the report. Notably, full-year same-restaurant sales growth guidance was raised to 4.5%–6.5% from the prior 3.0%–5.0%, and adjusted EBITDA guidance was lifted to $181M–$191M.

Even the Whispers Were Too Low

Heading into the earnings report, institutional investors were optimistic about CAVA Group’s earnings. The whisper number, an unofficial forecast, put CAVA’s adjusted earnings per share at 19 cents. That was 2 cents higher than the consensus estimate of 17 cents. So Cava didn’t just beat the consensus; it beat an even higher bullish expectation.

Analysts noticed. After earnings, the CAVA analyst forecasts on MarketBeat showed that seven analysts had boosted their CAVA price targets, with many setting targets above the consensus price target of $91.85.

Why the Rally May Be Volatile

Heading into the earnings report, CAVA was under selling pressure, as evidenced by the long red candle on slightly above-average volume. That correlates with short interest of around 11% on CAVA. It also means that some of the post-earnings rally may be due to short covering by traders who are quickly unwinding their positions.

That doesn’t mean that investors shouldn’t buy into this rally, just that there may be some volatility in the next few days. CAVA is currently trading below its 50-day simple moving average (SMA) of about $85, so investors will want to see a sustained close above that level. That would likely confirm a bullish divergence in the MACD, where the signal line and MACD line remain negative but are curling upward — a potential early sign of momentum shifting back in the bulls' favor.

One more headwind for CAVA is its lofty valuation. The stock trades at around 150x earnings and about 7.2x price-to-sales. That’s several quarters at least of future growth priced into the stock.

But like other stocks with lofty valuations, performance may drive near-term sentiment in CAVA. As the price action into earnings showed, investors were expecting the report to disappoint. By flipping the script, the company has bought itself another quarter for investors to assess the growth trajectory.

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