Coffee chain Dutch Bros (BROS -5.89%) is on a roll, and I don't mean with ham and cheese. The stock has more than doubled in six months as Dutch Bros keeps crushing earnings and revenue estimates in every quarterly report.
But many investors look at Dutch Bros' stock with a wistful sigh these days. The price chart is skyrocketing, shares are changing hands at nosebleed-inducing price-to-earnings (P/E) ratios, and it must be too late to jump on this bandwagon. After all, who needs another national chain of coffee stores? Surely, there can't be much room for big gains from this lofty level.
I'll admit that Dutch Bros faces a challenging market, with sector giant Starbucks (SBUX -4.94%) attempting a turnaround and Chinese peer Luckin Coffee (LKNC.Y -4.25%) planning an American expansion. But the American coffee market is a massive $67 billion pot of annual revenue, with more than 40% of those tasty sales flowing into 18,537 Starbucks locations.
NYSE: BROS
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Dutch Bros' $1.3 billion of 2024 revenue and 982 stores are a small drop in that caffeinated ocean. And this company does things differently, focusing on friendly service at the drive-through window. Most of its stores don't even have a walk-in seating area, but the friendly "broistas" are happy to serve pedestrians at the drive-through window. Moreover, Dutch Bros' store-brand energy drinks have already been a core product for a decade, and that focus on alternative menu items sets the company even further apart from Starbucks-style coffee shops.
So I see plenty of room for growth here. Dutch Bros' nationwide expansion project essentially started with its fundraising IPO in 2021, and management plans to at least quadruple the store count over time. I'm sure there's room for another coffee-shop experience, as long as it's refreshingly different.
And Dutch Bros fits that bill. The drive-through focus gives this company a unique competitive moat. That's why it's not too late to buy this red-hot coffee stock.
