Dutch Bros (BROS -0.62%) and Cava (CAVA 2.20%) are two up-and-coming chains in the restaurant arena. Both these companies’ share prices have been crushed S&P 500 this year, which can easily attract the attention of the investment world.

Which of these two restaurant stocks is the best buy right now?

To rise through the coffee ranks

Dutch Bros operates 950 stores that sell coffee and other beverages, focusing on speed and customer service. The business has expanded its footprint remarkably, with the current number of stores more than doubling by the end of 2020.

Executives believe Dutch Bros could have at least 4,000 stores open in the next 10 to 15 years – more than quadrupling its current physical footprint. At this level of scale, it’s not hard to believe that revenues and earnings will be significantly higher, exactly what the shareholders want.

As a cafe chain, Dutch Bros naturally draws comparisons with the giants in the industry, Starbucks. The Seattle-based company has been around for five decades. And over the long haul, it has built a powerful brand presence across the globe, with massive scale thanks to its more than 40,000 locations.

A favorable outcome would be for Dutch Bros to start developing their own economic moat. If it can achieve management’s goal of opening 4,000 stores, its brand would certainly become more widely recognized.

And it would probably get other benefits when acquiring supplies, spending on marketing, and finding favorable properties.

A quick success story

Cava is also staring at a long growth trajectory, according to its management, which believes the business could have 1,000 locations open in the U.S. by 2032. That would translate to a 184% profit from its current 352 restaurants.

But given the company’s monster success, perhaps management can raise its long-term outlook. In its most recent fiscal quarter, Cava reported an impressive 18.1% increase in same-store sales (comps), with a store-level margin of 25.6%. Net income skyrocketed 162.9%. It’s hard not to get excited about these results.

As a fast-casual restaurant chain, but one focused on Mediterranean cuisine, Cava easily draws comparisons Chipotle Mexican Grill. The Tex-Mex chain has certainly developed a strong brand in the space, supporting its proven pricing power and consistent growth. Additionally, with its more than 3,600 stores, Chipotle likely benefits from some economies of scale, not unlike the advantages Starbucks has developed over time.

Perhaps if Cava can pull off its store expansion plan, it could eventually have its own financial moat. And this would make it a higher quality company, especially with the potential for rising profits.

Consider this factor

To be clear, I’m not particularly excited to buy any of these companies right now. That’s because I don’t think they’ve developed financial moats, as they’re still small players in the large and hyper-competitive restaurant industry. This forces me to question their endurance.

But for investors looking for restaurant stocks that have meaningful growth potential, both Dutch Bros and Cava may belong on their watch lists. As I’ve discussed before, they each have characteristics that some investors may find compelling.

But I think it’s also extremely important to consider valuation as well. At the time of writing, shares in Dutch Bros are trading at a price for sale ratio (P/S) of 3.8. At the same time, the Cava share is traded at a P/S of 21.3.

If I had to choose between the two as the better company to add to your portfolio, I’d go with Dutch Bros based on valuation alone.