CAVA valuation is excessive relative to current financials; high multiples create risk.

And now, folks, our next stock from Morning Star, a slightly different type of business, Cava, the fast-growing Mediterranean restaurant chain.

To be perfectly honest, the work is going wonderfully . Sales increased by 31% and visitor traffic increased by more than 5%. Do you remember SanDisk, where most of the growth came from rising prices?

"Kava " is the exact opposite. More people are already entering through the doors, and that is the healthiest kind of growth.

It now has 476 restaurants, each with an average annual sales of about $3 million . So why recommend selling? Well, they think the stock has become too expensive .

The optimistic view is that it is still growing rapidly and plans to more than double its restaurants to over 1,000 by 2032 with new expansion opportunities in the Midwest.

The pessimistic scenario, i.e. expanding from fewer than 500 stores to more than 1,000, is extremely difficult without encountering setbacks. Its restaurants' profit margins have already fallen to around 26% due to rising food and labor costs.

And here is the mistake I promised you at the beginning . Paying too much . A great restaurant may still be a risky stock if its price is not right.

So let's see what the numbers say. Guys, the market capitalization is $6.25 billion . Guys, for a retail store with branches, that's a very low enterprise value of $6.48 billion. I love that.

Now, their cash flow was $50 last year and has been negative for the past five years. It is in a state of growth. Their cash flow is less than their net income. Good. Guys, the stock is trading at 130 times free cash flow and 95 times earnings.

Man, you really have to grow up fast to justify that.

The return on capital for 5 years is 48%. Their return for one year is 6%. Hmm, that's interesting. Okay, let's take a look at their eight pillars. Oh, guys, there's one thing I want to show you.

I remember when the arrow was flying high. Two years ago, its all-time high was $172. It is currently at $52 per share. Do n't chase the story.

Let's move on to the eight pillars. Good. They have significantly reduced shareholder stakes, by 22%. They don't have a 5-year average free cash flow, but overall, I think their debt levels are quite reasonable.

Of course, given the lack of free cash flow in the past five years, we only have the 5-year earnings multiple to look at. It's expensive. So, guys, it's a small, newly established, growing company.

The numbers probably don't look good in companies like this. So keep that in mind when you look at it.

Let's see what the analysts think. Well, the analysts are very optimistic. They expect to triple its earnings from 55 cents to $1.80 per share over the next four years. And revenues are growing at a rate of 15 to 20% annually for the next four years as well , doubling to $3 billion. Good.

So, it's time to analyze the stock, my friend. And guess what? This is the first time I have analyzed Kava on a stock analysis tool.

Here are my assumptions for the next ten years. Revenue growth of 10, 15 and 20%. Earnings and free cash flow of 3.5%, 5%, and 6.5%. I have set a price-to-earnings ratio of 15, 18 and 21.

My intrinsic value return is 9.5% without a margin of safety. The stock price is currently 53. Remember it was at 172 recently. The minimum price is 10, the maximum is 50, and the average is 24 .

Therefore, it most likely matches my hypotheses at their highest, best estimates. But again, I may be conservative in my assumptions about their growth. But the point here is: if we had made a video about this two years ago when the stock was rising sharply, the comments would have been: "Oh my God, look at this company." It continues to rise. "You're missing out ."