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Cava group (CAVA) has been one of the most searched stocks on Zacks.com lately. So you might want to look at some of the facts that could affect the stock’s performance in the short term.

Shares of this Mediterranean restaurant chain have returned +7% over the past month, while the Zacks S&P 500 Composite has seen a change of +5.8%. The Zacks Retail – Restaurants industry, which includes Cava, has gained 3.2% in the period. The crucial question now is: Where could the share develop in the short term?

While media releases or rumors about a material change in a company’s business prospects usually cause the stock to “trend” and result in an immediate price change, there are always some fundamental facts that ultimately influence the buy and hold decision.

Rather than focusing on anything else, at Zacks we emphasize evaluating changes to a company’s earnings outlook. This is because we assume that the fair value of its shares is determined by the present value of its future earnings streams.

Essentially, we look at how sell-side analysts covering the stock revise their earnings estimates to reflect the impact of the latest business trends. And when a company’s earnings estimates rise, so does the fair value of its stock. A higher fair value than the current market price increases investors’ interest in purchasing the stock and results in an increase in the stock price. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For the current quarter, Cava is expected to report earnings of $0.06 per share, a change of +200% from the prior-year quarter. The Zacks Consensus Estimate has moved +83.3% over the past 30 days.

The consensus earnings estimate of $0.50 for the current fiscal year suggests a year-over-year change of +138.1%. This estimate has changed +14.8% over the past 30 days.

For the next fiscal year, the consensus earnings estimate of $0.61 represents a change of +22.9% from what Cava was expected to report a year ago. Over the past month, the estimate has changed by +17.2%.

Our proprietary stock ranking tool, the Zacks Rank, has a strong, outside-audited track record of success and provides a more meaningful picture of a stock’s near-term price performance by effectively leveraging the power of earnings estimate revisions. Based on the size of the recent consensus estimate change as well as three other factors related to earnings estimates, Zacks rates Cava at #2 (Buy).

The following chart shows the evolution of the company’s forecast 12-month EPS estimate:

While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow revenue. It is almost impossible for a company to increase its profits without increasing its sales over long periods of time. Therefore, understanding a company’s potential revenue growth is crucial.

In Cava’s case, the consensus revenue estimate of $225.52 million for the current quarter suggests a year-over-year change of +27.3%. The estimates of $961.85 million and $1.2 billion for the current and next fiscal years suggest changes of +32% and +24.7%, respectively.

Cava reported revenue of $243.82 million in its most recent reported quarter, representing a year-over-year change of +38.9%. Earnings per share are $0.15 in the same period, compared to $0.06 a year ago.

Compared to the Zacks Consensus Estimate of $235.13 million, reported revenues represented a surprise of +3.7%. The EPS surprise was +36.36%.

The company beat consensus EPS estimates in each of the last four quarters. The company topped consensus revenue estimates each time during that period.

No investment decision can be efficient without taking into account the valuation of a stock. When predicting the future price performance of a stock, it is critical to determine whether the current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Comparing the current value of a company’s valuation multiples, such as: B. Price to Earnings Ratio (P/E Ratio), Price to Sales Ratio (P/S) and Price to Cash Flow (P/CF), with its own historical values help determine whether the stock is fair, overvalued or undervalued is. However, comparing the company with its competitors based on these parameters gives a good impression of how appropriate the share price is.

The Zacks Value Style Score (part of the Zacks Style Scores system), which considers both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C); etc.) is very helpful in determining whether a stock is overvalued, correctly valued or temporarily undervalued.

Cava is rated F in this regard, suggesting that it is trading at a premium compared to its peers. Click here to see the values of some of the evaluation metrics that determined this grade.

The facts discussed here and much other information on Zacks.com could help determine whether the market excitement surrounding Cava is worth paying attention to. However, its Zacks Rank #2 suggests it could outperform the broader market in the near term.

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