CAVA Group, Inc. (NYSE:CAVA) shareholders have had their patience rewarded with a 57% share price jump in the last month. The annual gain comes to 193% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking CAVA Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 16.5x, considering almost half the companies in the United States' Hospitality industry have P/S ratios below 1.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does CAVA Group's Recent Performance Look Like?

CAVA Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is CAVA Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as CAVA Group's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The strong recent performance means it was also able to grow revenue by 69% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 20% each year during the coming three years according to the twelve analysts following the company. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader industry.

In light of this, it's understandable that CAVA Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On CAVA Group's P/S

The strong share price surge has lead to CAVA Group's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into CAVA Group shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for CAVA Group that we have uncovered.

If you're unsure about the strength of CAVA Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.