- CNBC's Jim Cramer told investors to tread carefully when it comes to Cava, the fast-casual Mediterranean restaurant chain that's expected to go public this week.
- Cava raised its valuation on Monday from $2.12 billion to $2.23 billion, with shares priced between about $17 and $19 apiece.
CNBC's Jim Cramer on Tuesday gave investors his take on Cava, the popular fast-casual Mediterranean chain that's expected to go public this week. While he thinks the stock will roar on the IPO, he said investors should tread carefully and not burn themselves if "Cava comes out of the gateway too hot."
"Unless you can get a piece of the actual IPO on the IPO, I recommend holding off on this one," Cramer said. "And, please, if you do want to buy Cava in the aftermarket, I'm begging you, please use limit orders, not market orders, protect yourself. In fact, you should always be using limit orders, because you have no control over the price you pay with market orders."
Cava raised its valuation on Monday from $2.12 billion to $2.23 billion, with shares priced between about $17 and $19 apiece, according to Reuters. Cramer said he expects underwriters to underprice Cava shares at first in order to engineer "a nice first-day pop."
Cava is one of the most high-profile IPOs since the market for companies going public cooled off last year. The company saw nearly 13% revenue growth last year, and its first-quarter same-store sales shot up 28.4%.
But because Cava is not yet profitable, Cramer said it's difficult to evaluate and determine whether it will flop like Sweetgreen or see long-term success like Chipotle. The former jumped on its IPO day, going from $49.56 to $56.20, only to plunge to $6.10 and never come close to its highs, trading at around $10 on Tuesday. Chipotle, on the other hand, has grown 9,290% from its initial offering and is one of the highest-performing restaurant stocks.
Cramer also warned investors about the pitfalls of the IPO market in general, with most following a similar cycle. First, underwriters tempt investors with quality merchandise at low prices. As they gain traction, companies start putting out lower-quality commodities that hyped-up buyers continue to purchase. Eventually, Cramer said the market becomes "flooded with garbage," only to eventually collapse. According to Cramer, this is exactly what happened in 2021, and now the cycle may be starting all over again.
Cramer's bottom line: Be patient and wait a little while to see how everything plays out.
"While I don't like Cava the restaurant — again, because of the garlic problem and my stomach and Pepto-[Bismol] and Alka-[Seltzer] — I do like Cava the business," Cramer said. "It's just that I'm wary of paying too much for Cava the stock. If the IPO's a hit on Thursday, you might want to wait for it to cool off before you even think of pulling the trigger."
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