Dutch Barista Brothers' Shares have Surged More Than 65% in Recent Weeks. Is the Time for Purchase Already Past?
Dutch Barista Brothers' Shares have Surged More Than 65% in Recent Weeks. Is the Time for Purchase Already Past?
Dutch Bros (BROS 0.07%) stock has skyrocketed by 65% since November's beginning, thanks to its remarkable financial upswing, catching more investor interest. Although it's currently trading approximately one-third below its late 2021 post-IPO peak, the hike is noteworthy, considering the coffeehouse sector's intense competition, featuring numerous independents, chains like Dunkin', and the dominant presence of Starbucks.
Despite the fierce rivalry, Dutch Bros presents an appealing opportunity for coffee stock investors. The rapid stock price increase might just be the start of an impressive journey. Here's why.
Dutch Bros' expansion trajectory
Looking back at Starbucks or Walmart's growth patterns, one can see that a regional shift into a national empire can significantly boost a company's share value over time. Dutch Bros' shareholders could be in for a similar journey.
As of Q3 2024, Dutch Bros has expanded to 950 locations across 18 states. Investors should also keep in mind that when its stock peaked in 2021, the company managed just over 500 locations.
It's true that Dutch Bros has much fewer stores than the nearly 40,000 Starbucks global locations (around 17,000 in the U.S.). Nevertheless, Dutch Bros' smaller size means that investors still stand to benefit significantly from its growth within the U.S.
Unlike Starbucks, every Dutch Bros outlet features a drive-thru. This adds pressure for Dutch Bros to deliver a captivating, high-quality product, but it also saves on costly indoor seating areas.
Notably, the expansion isn't set to slow down anytime soon. During the Q3 2024 earnings call, CEO and President Christine Barone shared plans to open at least 160 new stores in 2025. Barone has also hinted at a goal of operating over 4,000 stores, which should significantly boost its earnings as it expands its reach and offerings.
Dutch Bros' financial situation
Not surprisingly, this growth spurt has had a significant impact on Dutch Bros' financials. During the first nine months of 2024, same-shop sales surged by over 5%. Combined with shop additions, this resulted in revenues of over $938 million for the period, a 32% year-on-year increase.
Operating expenses rose by 27% over that period, which enabled a net income of $60 million for the first three quarters of 2024 – nearly four times that of the same period in 2023.
However, the stock might face some short-term challenges due to its recent price surge. The stock's value has more than doubled in the past year, with the majority of that increase occurring post-November.
Furthermore, the 30% revenue growth forecast for 2024 is expected to slow down to 20% in 2025. While that's still impressive growth, it's a decrease compared to the previous year. The stock's trading at a forward P/E ratio of 123 might make investors question whether the stock's price has outpaced its fundamentals.
Moreover, Dutch Bros' valuation has begun to rise when evaluated by sales. At a price-to-sales (P/S) ratio of 4.3, it's more expensive than Starbucks (3.1 times sales). Such an increase might make investors wary, which could negatively affect the stock in the short term.
So, is buying Dutch Bros stock still worth it?
Luckily for potential investors, the short answer is yes – it's not too late to invest in Dutch Bros stock.
Despite the dramatic price hike in recent days, Dutch Bros remains relatively affordable when considered by sales. After all, it trades approximately one-third below its record high.
Admittedly, the recent stock price surge increases the likelihood of a near-term downturn. Therefore, investors might want to consider a dollar-cost averaging strategy instead of investing a large sum all at once. But with Dutch Bros still early in its expansion phase, investors can still reap benefits from years of future growth.
Given the financial growth and expansion plans of Dutch Bros, investing in their stocks could potentially yield significant returns. For instance, if Starbucks' growth patterns are any indication, Dutch Bros' expansion into more locations could significantly boost its share value over time. Additionally, Dutch Bros' focus on drive-thrus and efficient operations could provide cost savings and potential for higher profitability, making it an attractive investment opportunity in the finance and money markets for those interested in investing.