Domino’s Pizza (DPZ 1.00%) the stock recently attracted a lot of attention after being added to Berkshire Hathawaythe stock portfolio of . While investors love to follow Warren Buffett moves, it probably wasn’t his stock pick given the relatively small size of the purchase. Instead, it was likely purchased by one of Berkshire’s two other investment managers, Ted Weschler or Todd Combs.

Although Domino’s is a solid company that has grown its same store sales, it is considered a more mature company with more than 21,000 locations worldwide and less growth potential. It also carries a significant amount of debt and leverage.

If it’s restaurant stocks that have Berkshire’s attention, the conglomerate might want to consider an alternative restaurant stock that could have much more upside potential than Domino’s over the next 10 to 15 years.

The next big expansion story is Cava Group

One of the best growth stories in the restaurant industry right now is Cava Group (HOW ARE YOU 4.06%)which operates a growing chain of Mediterranean fast-casual restaurants. The company has similar characteristics to a young Chipotle Mexican Grill (CMG 4.84%)which has been the big growth stock for restaurants over the last 10 to 15 years.

One of the big similarities is that both companies focus on working with relatively few (but higher quality) ingredients and that meals are prepared in an assembly line process in front of the customer. This allows customers to quickly get completely personalized meals using only the ingredients they want. This helps to increase customer satisfaction, reduce waiting times and significantly reduce food waste.

This also leads to strong restaurant-level margins (RLMs), which are the operating margins a restaurant produces before factoring in business costs. Last quarter, Cava saw its RLMs improve 50 basis points to 25.6%, which was right in line with Chipotle, which had RLMs of 25.5% last quarter. Higher MLRs also often lead to shorter payback periods on construction expenses when new restaurants are opened. All this contributes to expansion.

Another similarity to a young Chipotle is that Cava is experiencing outsized same-store sales growth. Last quarter, the company’s same-restaurant sales jumped 18.1%, adding to a 14.4% increase a year ago. Cava was able to increase its visitor traffic by an impressive 12.9%, despite a fairly significant price increase. This shows that the company has strong pricing power.

Like Chipotle and other quick service restaurants (QSRs), the company has also been able to drive traffic through menu innovation and limited time offers (LTOs). Its Grilled Steak introduced earlier this year has been a huge hit, while its LTO Garlic Ranch Pita Chips have also been a strong driver. LTOs are a real traffic driver for QSRs, from Chipotle’s brisket option to McDonald’s McRib Sandwich.

Cava’s strong same-store sales also helped generate very robust average unit volumes (AUV), which correspond to the average sales produced by each restaurant. Its AUV currently stands at $2.8 million, which isn’t that far behind Chipotle’s current AUV of $3.2 million. The combination of higher AUVs and RLMs ultimately leads to higher profits.

Image source: Getty Images.

Cava has solid upside potential

So far, Cava has produced excellent results over the past year. However, what excites investors the most are its expansion opportunities. At the end of the third quarter, it operated only 352 locations, less than 10% of the 3,615 locations Chipotle had at the end of the quarter. It is expected to open between 56 and 58 new sites in 2024, which will be added to the 309 it operated at the end of 2023. At the same time, it is targeting growth of at least 17% in the number of units in 2025, and has indicated in the past. will seek to expand its sites by approximately 15% per year.

The company generated solid free cash flow so far in 2024, meaning it can grow without having to take on debt. This is important because it allows the business to grow without becoming overburdened.

If Cava grew its restaurant base by 17% in 2025 and 15% annually thereafter, by the end of 2040 it would have about as many restaurants as Chipotle has today. With RLMs currently tied and AUMs not that far away, it’s not hard to imagine that Cava could look like today’s Chipotle in 10 to 15 years.

So while the stock currently looks expensive, with critics pointing out that it’s trading at nearly $46 million per restaurant, the long-term upside potential is clearly there. As such, long-term investors may consider adding this high-growth stock at current levels or lower.