Dropping by 30%, This Growth Stock Presents an Ideal Purchase Opportunity Now.
The market has been swaying back and forth about the coffee chain Dutch Bros for most of its brief stint as a public company. However, it's currently on the buy side, with Dutch Bros stock skyrocketing approximately 67% this year.
Missing out seems unlikely. Dutch Bros stock is still a whopping 30% below its all-time highs, and the potential is immense. Here's why.
A one-of-a-kind coffee chain
Based in Oregon, Dutch Bros is a coffee shop chain that hasn't had as much time in the spotlight as Starbucks, but it boasts over three decades of experience. It recently embarked on a domestic expansion strategy, recognizing an opportunity to sell its beverages nationwide. Although it had several shops along the West Coast for years, it's expanded eastward across the lower states since going public, with operations in 18 U.S. states as of the 2024 third quarter.
Dutch Bros has a unique atmosphere and ethos, focusing on speed and customer service. Most of its stores feature drive-thrus, and its customizable branded beverages are striking a chord with coffee drinkers.
Sales have been robust. They rose by 28% year-over-year in the third quarter, and growth is pushing the company towards profitability. Net income increased from $13.4 million last year to $21.7 million in the quarter.
Same-store sales have been less impressive.
There are a few reasons for this. For one, Dutch Bros has fewer stores in this category. Inflation has also led some consumers to be more cautious with their spending, and new regional stores can draw customers away from existing ones. However, the 2.7% year-over-year same-store growth in the third quarter surpassed expectations, illustrating a solid store network achieving its brand-building goals.
A winning expansion plan
New stores are Dutch Bros' main growth catalyst. It opened 38 new stores in the third quarter and aims for 150 this year. It has recently revamped its real estate strategy, resulting in fewer store openings than initially planned, but it's a more efficient strategy with better financial benefits. Dutch Bros is young, and growing pains are to be expected.
Former CEO stepped down last year, and current CEO Christine Barone took the helm to lead the company into a new growth phase. Dutch Bros is refining its image and processes to expand at a measured and thoughtful pace, focusing on the right regions, formats, and locations for success. It recently rolled out mobile ordering, which accounts for only 7% of orders, but that could increase and boost sales. Dutch Bros is also testing walk-up windows to address demand in inventive ways.
Dutch Bros aims to reach around 4,000 stores within the next 10 to 15 years, which equates to a substantial growth engine. If you believe in the company's strategy, it's not hard to envision Dutch Bros becoming a household name and its stock becoming a multi-bagger. However, patience is required.
You can still purchase at this price
I've been considering Dutch Bros at its current valuation. Shares are currently trading at a forward P/E of 118, which is expensive, and a price-to-sales ratio of 4.
Growth stocks can demand a premium valuation due to high investor expectations. The sales-based valuation is much lower than it was two years ago and could be reliable rather than the earnings-based ratio. Dutch Bros' net income is growing rapidly, and it's profitable for a short period. It also has a PEG ratio of 0.3, implying it might still be undervalued.
At its current price, Wall Street doesn't anticipate much growth; the average analyst target price is only 3% higher than today. But you can't predict the market; if you have a long-term horizon, you could invest in Dutch Bros today and hold it for years. You might even consider a dollar-cost averaging strategy to secure some shares now and potentially enjoy a better entry point down the line.
Given the current market performance of Dutch Bros stock, investors might want to consider their financial strategies. With the shares still 30% below their all-time highs, it presents an opportunity for those keen on investing in this rapidly growing coffee chain. The company's unique focus on speed and customer service, coupled with its robust sales growth and expansion plans, could make Dutch Bros a promising long-term investment.
Furthermore, the company's unique selling points, such as its customizable beverages and drive-thru stores, enhance its appeal to coffee drinkers, contributing to its potential for market dominance and increased stock value. Investors might want to explore different financial strategies, like dollar-cost averaging, to capitalize on the potential growth of Dutch Bros.
