Following last year's 70% gain, the idea of stepping into a stake in Dutch Bros (BROS 0.07%) stock now could be a bit intimidating. There are limits to how far a stock can climb in a fairly short period of time, after all.
This is one of those cases, however, where investors may be better served by focusing on where this company is going rather than where its stock's been. There's arguably still plenty more long-term upside ahead, even if the analyst community says the stock's almost fully valued in the near term.
Four specific reasons to use the rally's pause since late November as an entry point stand out among the rest.
What's Dutch Bros?
Dutch Bros is a chain of coffee drive-thrus. It has 950 stores as of the latest count, with most of them on the West Coast and in the southwestern quarter of the United States. It's steadily making its way eastward, however.
It technically competes with powerhouse Starbucks (SBUX 0.45%), although it's seemingly no real threat given Starbucks' 16,941 U.S. locales. The average Starbucks store is also much bigger, offering patrons a place to sit and enjoy food with their coffee and other premium beverages. Dutch Bros locations are only drive-thrus.
Don't let its smaller size fool you, though. Dutch Bros differentiates itself in a way that draws in customers, including ways that are attracting some of Starbucks' regulars.
Chief among these differences is the employees' typical interaction with their customers. Whereas Starbucks has spent the last few decades ensuring a very formal and uniform experience at each of its stores, Dutch Bros customers are more likely than not to have an informal and personal conversation with employees. It's also not uncommon for each locale to publicly enlist support for a local, community-based cause, including fellow employees in need.
4 reasons now's a great time to buy Dutch Bros stock
Dutch Bros is competing with Starbucks and other coffee sellers, including McDonald's, by being something completely different than either.
Simply being different doesn't necessarily reward investors, however. What makes this stock such a hot investment prospect here and now?
These four things, mostly.
1. Growth galore
For the three-month stretch ending in September, Dutch Bros' top line of $338 million was up to the tune of 28% year over year. The bulk of this sales growth stemmed from new-store openings (a total of 38), although same-store sales improved a respectable 2.7% versus a comparison of 4% for the same quarter a year earlier.
One strong quarter doesn't make a trend, but this degree of sales growth isn't a one-off. This pace of revenue growth has been in place since at least September 2021, when the company went public and began disclosing its fiscal results.
BROS Revenue (Quarterly) data by YCharts.
Moreover, the analyst community is calling for comparable top-line growth at least through 2026.
2. Expansion ahead
There's every reason to believe Dutch Bros will be able reach analysts' lofty expectations for the near and not-so-near future.
While 950 stores is considerably more than the 800 locales that were up and running two years ago -- and far more than the 328 shops established seven years back -- this count still only scratches the surface of what's ahead. The company's longer-term goal is to build 4,000 stores.
That four-fold expansion is possible without even forcing a head-to-head showdown with bigger and deeper-pocketed rivals like McDonald's and Starbucks. Dutch Bros' relatively smaller size could be seen as an advantage, in fact, since it allows the company to more readily maintain its casual, personal relationships with its customers by doing the same with its employees.
3. It's increasingly profitable
Perhaps the most impressive aspect of Dutch Bros' business and growth is that, unlike so many other outfits of its size and ilk, this one is profitable, and increasingly so. Its 2023 bottom line of $0.30 per share is expected to roll in at $0.45 for 2024, en route to earnings of $0.55 per share in 2025.
Data source: StockAnalysis.com. Chart by author.
Scale obviously helps. While operating more stores means the company must spend more on variable costs like supplies and payroll, fixed costs like corporate overhead and marketing are -- well, fixed -- leaving more money behind to trickle down to the bottom line. Greater size also means the company enjoys more bargaining leverage when it comes to dealing with suppliers and service providers.
4. This is what customers want
Finally -- and perhaps most important -- as unusual as a less-polished, informal customer experience may seem in comparison to what most consumer-facing companies have been striving to offer since the 1980s, the Dutch Bros way of connecting with its customers is what people want.
Such cultural preference switches aren't unheard of. They're quite normal, in fact.
For instance, during the 1970s, shoppers abandoned downtown department stores for malls more likely to be found nearer neighborhoods. A sweeping shift from local ownership of restaurants to chains took shape shortly thereafter. Pickup trucks were once only owned by people who needed one for their work. Now they're driven like sedans. Brand loyalty has also been upended by savvy shopping and a willingness to try alternatives.
In other words, change is the norm. Tiring of the old, people always seem to want something else.
In Dutch Bros' case, the underlying shift is rooted in a growing preference for authenticity, and a growing disaffinity for any industry's suspiciously dominant names. Numbers from market researcher Oberlo indicate 88% of consumers say authenticity plays a role in whether they purchase a brand's products. Nearly half of consumers say they're willing to pay more to buy from brands they trust.
It would be naïve to ignore the role that convenience also plays here. Dutch Bros locations are built and operated to only accommodate drive-thru customers, making for a speedy experience that competitors can't always offer.
Buckle up for the bumpy ride that awaits
None of this guarantees that Dutch Bros stock won't suffer some sort of setback at some point in the foreseeable future. Indeed, if this stock's historical volatility is any indication, investors can count on an uncomfortable swing taking shape sooner or later.
Just keep the bigger picture in mind if and when it happens. The underlying growth story here is an incredibly bullish one, even if it'll take years for it to fully play out. It's certainly worth the wait, and worth the likely ebb and flow in the meantime.
