Cava Group's (NYSE: CAVA) chain of fast-casual restaurants are being called the next after the company's wildly successful initial public offering. Cava stock went public at $22 per share in June, already a high price relative to sales, and has since more than doubled. The company is currently valued at around $5.4 billion, or about 12 times fiscal 2022 sales.

To be fair, Cava is growing quickly. There were 263 Cava restaurants as of April, and the company has over 100 new sites with signed letters of intent in the pipeline. Existing restaurants are also doing well, with same restaurants sales up 28.4% in the first quarter of 2023.

But the path from a few hundred restaurants to a few thousand restaurants, a path Cava must walk to justify its valuation and produce solid returns for investors, is a perilous one. What works on a small scale doesn't always work on a larger scale. Even if Cava generally does well, opening new locations at a rapid pace and generating positive same-restaurant sales growth, a lofty valuation means that the stock could still be a loser.

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Source Fool.com