Cava

Cava is a Mediterranean food restaurant that I think of as being maybe a step below Chipotle, but a step ahead of a Moes or on the same level as a Panera. Anyways, it just IPO’d (initial public offering, going public) and opened to a resounding success. I believe it IPO’d at around $20 and jumped up to the mid-40s nearly instantly. Since then it has cooled a lil’, but still a significant win for the investment bankers who underwrote this, and a major win for the intelligent people who were already bought in.

I think any common trader buying in right now is dumb. First of all, as a general rule of thumb, (which I have broken in the past) I try not to buy into a recently IPO’d company for around a year which is how long it takes for a company to find its groove. And I do that to avoid garbage like this, the seemingly bizarre 117% jump, and then the selloff, or whatever next is going to happen. I’ll never be able to buy as quickly as the hedge funds, and I can’t tell when to sell because none of it is based on actual numbers or the quality of the company. These hedge funds are calling the wave as they’re riding it, and there is no way you or I could compete with that. It just makes more sense to wait until the hype has died down and then you can make decisions based off of rational fact without having to deal with this gunk. Now, I think this Cava buy and the hype surrounding it is a return to a very worrying pre-covid reality.

CAVA DOES NOT MAKE MONEY AND WILL NEVER MAKE MONEY. Before Covid, hyper-growth-focused companies like Uber were IPO-ing to massive successes, similar to this. However, they don’t make money. These companies have maxed out their growth, or are very near to it. There isn’t a ton of room for these companies to continue to grow, they have already scaled to their farthest extent (or near to it) and they still can’t make money. If Covid had not occurred we would have been heading to a bubble far worse than the Covid bubble. Covid was a blessing in disguise for many of these no-profit-only growth companies. A warning shot. However, they aren’t listening. If they do not right their course, if they do not fix this super basic problem, this entire thing will collapse. Fight Club style. Luckily, or maybe not so luckily, the government stepped in and saved these companies, which was the right thing to do at the time. However, if they had let the free market take effect this type of business would have been crippled. Cava wouldn’t be allowed to IPO because it doesn’t make money. The government stepped in and saved millions of jobs and millions of lives, but they have merely postponed this bubble pop. Now this will get worse and worse, it may be tens of millions of jobs next time. I don’t know what sort of catastrophe will cause the next pop, but it will cause investors to pull their money, or stop dumping money at such ludicrous rates and these companies will burn. It may be a bank failure, which I previously mentioned, or an expansion of the Ukraine-Russia war but it will be something that the US government will not be able to contain quite as well. The fallout will be immense and everything will collapse. I typically don’t enjoy being a cynic, but this feels so obvious. These companies won’t be profitable ever, the only thing keeping these companies going is a seemingly never-ending hype cycle. This cancer should have been destroyed in 2020 but it has been allowed to grow and now it has been allowed to become pervasive in modern business. However, one day eventually, something will happen that will open investors’ eyes and it will be a sad day. I can’t predict when it will happen nor the best computers in the world which is what makes betting against these companies so tricky. I genuinely wish I could give anyone reading this a half-decent answer for how to combat this, I can only wish you luck. :(