4 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow | The Motley Fool (2024)

Although the market didn't like Dutch Bros' second-quarter earnings, four critical reasons for optimism make the company a compelling long-term buy.

Upstart coffee and hand-crafted beverages chain Dutch Bros (BROS 6.91%) released its earnings report on Aug. 7. The company grew sales and adjusted earnings per share (EPS) by 30% and 46%, respectively, topping analysts' expectations. Despite these impressive results, the market sent Dutch Bros' stock down roughly 21% as the company admitted that its new store openings would be closer to the lower end of its 150- to 165-shop count in 2024.

While this reaction to the potential of slowing expansion plans is understandable for a growth stock like Dutch Bros, wiping away one-fifth of the company's value in 24 hours seems like an overreaction. Thanks to this significant drop -- and the four reasons I will discuss below -- I can't help but be optimistic about Dutch Bros shares now.

1. Dutch Bros' growth marathon is in its early miles

Even though the company more than doubled its shop count from 441 locations in 2020 to today's 900-plus stores, roughly 75% of Dutch Bros' locations are in just five states: Washington, Oregon, California, Arizona, and Texas. This unique density of locations in certain states is attractive in regard to the company's long-term potential for two reasons.

The first one is quite simple -- there is a massive greenfield expansion opportunity ahead for the company. It's currently only operating in 16 states across the western and southern portions of the United States, but Dutch Bros believes its store count could grow to over 4,000 in the decades ahead as it expands geographically.

Secondly, despite being heavily concentrated in five key states, the company is profitable. It's shown that it is capable of effectively adding new stores in a given city or state where it already operates without eating into its own profits.

2. Dutch Rewards members

Part of the reason that Dutch Bros has proven successful at growing its store count without having to rely heavily upon geographic expansion so far is that it has a very loyal customer base. It's generating 67% of its transactions from Dutch Rewards members as of its most recent quarter, so the company's ability to retain customers is top-tier.

Furthermore, this successful rewards program allows the company to glean insights from its customers. This data helps Dutch Bros create offerings its members would be interested in, and later enables the company to promote these new products directly to its members, keeping them engaged with the brand.

4 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow | The Motley Fool (1)

Image source: Dutch Bros.

3. Innovating to maintain high customer satisfaction

Powered by these insights, Dutch Bros is able to launch new product ideas, such as its new Poppin' Boba beverages, protein coffees, or its limited-time "Gold Medal Rebel" energy drink. Dutch Bros generates roughly 50% of its sales from coffee, 25% from energy drinks, and 25% from teas, lemonades, smoothies, and sodas.

In addition to new flavors, the company collects ideas that its customers would like to see implemented, such as mobile order-ahead capabilities. It's rapidly testing and implementing this idea, and Dutch Bros believes the majority of its stores will support order-ahead purchases by the end of the year.

In addition to ordering ahead, Dutch Bros focuses on locations that use "escape lanes," which let customers leave as soon as their order is ready, and walk-up windows for non-drive-thru purchases.

4. A recently discounted (and maybe cheap) valuation

While it is difficult to assign a valuation to growth stocks like Dutch Bros, its price-to-sales (P/S) ratio of 1.9 is below that of the index's average of 2.8 despite the company's much faster growth rate. Additionally, while Dutch Bros has yet to reach positive free cash flow (FCF) due to its heavy spending on capital expenditures (capex) for new stores, its cash from operations (CFO) is robust, equaling 17% of sales.

4 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow | The Motley Fool (2)

BROS Revenue, Cash From Operations, and CapEx (TTM) data by YCharts

What this 17% margin means is that if the company decided it was done building new stores and would only spend capex on maintenance, it would create gobs of FCF for investors (as FCF equals CFO minus capex).

On a price-to-CFO basis, the company seems deeply discounted. It's even trading at a valuation below that of its massive peer, Starbucks, which already has 18 times more locations than Dutch Bros in the U.S.

4 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow | The Motley Fool (3)

BROS and SBUX Price to CFO Per Share (TTM) data by YCharts

As cheap as its valuations may be, however, Dutch Bros needs to be monitored for continued shareholder dilution. Simply put, the company is famous for issuing new shares to fund its growth -- more than doubling its outstanding shares since its initial public offering in 2021. As Dutch Bros grows, it will be essential for investors to see the company eventually generate enough CFO to self-fund its capex over the next year or so, making it a more shareholder-friendly growth machine.

Josh Kohn-Lindquist has positions in Dutch Bros and Starbucks. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

4 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow | The Motley Fool (2024)

FAQs

4 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow | The Motley Fool? ›

Dutch Bros Inc has 11.41% upside potential, based on the analysts' average price target. Is BROS a Buy, Sell or Hold? Dutch Bros Inc has a consensus rating of Moderate Buy which is based on 6 buy ratings, 3 hold ratings and 0 sell ratings.

Is it good to buy Dutch Bros stock? ›

Dutch Bros Inc has 11.41% upside potential, based on the analysts' average price target. Is BROS a Buy, Sell or Hold? Dutch Bros Inc has a consensus rating of Moderate Buy which is based on 6 buy ratings, 3 hold ratings and 0 sell ratings.

Why is Dutch Bros stock declining? ›

The combination of fewer store openings this year plus slowing same-store sales in the second half as the company laps a large price increase appear to be the biggest reasons behind the stock's plunge.

What is the prediction for Dutch Bros? ›

Dutch Bros Lifts Guidance, With Modest H2 Outlook

Dutch Bros lifted its 2024 revenue guidance to a range of $1.215 billion to $1.23 billion, up from $1.2 billion to $1.215 billion previously.

What is the future of BROS stock? ›

Dutch Bros Stock Forecast

The 11 analysts with 12-month price forecasts for Dutch Bros stock have an average target of 39, with a low estimate of 28 and a high estimate of 49. The average target predicts an increase of 29.05% from the current stock price of 30.22.

Is Dutch Bros stock undervalued? ›

The intrinsic value of one BROS stock under the Base Case scenario is 14.35 USD. Compared to the current market price of 37.99 USD, Dutch Bros Inc is Overvalued by 62%. What is intrinsic value? The backtest shows that BROS's market price has consistently been higher than its intrinsic value.

What is the Dutch Bros stock prediction for 2025? ›

Dutch Bros Inc. stock prediction for 1 year from now: $ 29.45 (-19.59%) Dutch Bros Inc. stock forecast for 2025: $ 37.36 (2.02%) Dutch Bros Inc. stock prediction for 2030: $ 41.29 (12.76%)

Why are people boycotting Dutch Bros? ›

Dutch Bros in Grants Pass, OR has gone down the wrong path. They are opening a gambling hall that will take money from Native American tribes. Tribes from around Oregon have put together information on how the Flying Lark will take money from their casinos as well as the state of Oregon.

Will Dutch Bros pay a dividend? ›

We do not anticipate paying any dividends in the foreseeable future.

Is Dutch Bros still growing? ›

Revenue rose 30%, including a 4.1% increase in system same-shop sales, and was underpinned by excellent margin flow through. With strong results 2024 to date despite the volatile consumer backdrop and expectations for a robust second half to the year, we are pleased to be raising our annual guidance.”

Is Dutch Bros doing good? ›

Dutch Bros is still in its high-growth phase, with a 39% year-over-year increase in revenue in Q1, and scale is resulting in higher profits.

Why choose Dutch Bros? ›

The true appeal of Dutch Bros comes from their plethora of drinks that are entirely adjustable in terms of sweetness. There are so many options, whether it is a lemonade, tea or coffee. Although they have pre-set options for customers to choose from, you are free to make whatever adjustments you want.

Who is the largest shareholder of Dutch Bros.? ›

Travis Boersma

Why buy Dutch Bros stock? ›

Key Points

Dutch Bros plans to add 165 new stores this year, with potential for more if new states are targeted. Comparable same-store sales growth is accelerating, hitting double digits in Q1, signaling strong existing store performance.

Why is Dutch Bros stock dropping? ›

Its gross margin missed analysts' expectations, and its full-year revenue guidance slightly missed Wall Street's estimates, the latter seeming to drag shares down. On the other hand, Dutch Bros blew past analysts' EPS expectations.

How many stores will Dutch Bros. open in 2024? ›

The drive-thru chain – the fourth largest in the US by outlets behind Starbucks, Dunkin' and Panera Bread – is seeking to open more than 150 stores in 2024 and plans to reach 1,000 sites by the first half of 2025. Dutch Bros, which is forecasting full-year sales above $1.2bn for 2024, posted $966m in revenue last year.

Is owning a Dutch Bros profitable? ›

Dutch Bros Franchise Earnings

Dutch Bros franchisees have an average gross sales of $2,000,000. Based off of the average gross sales, we can estimate a Dutch Bros franchisee makes $240,000 in estimated earnings (EBITDA) per year, assuming that the franchisee is an owner-operator in the location.

Is Dutch Bros doing well? ›

Comparable growth is accelerating

But same-store sales growth, which for Dutch Bros includes all stores open for at least 15 months, is picking up again. It came in at 10% year over year in the first quarter, the highest rate since Q1 2021, which was right before high inflation roiled the economy.

What is the price target for bro stock? ›

Stock Price Target BRO
High$112.00
Median$103.00
Low$88.00
Average$101.09
Current Price$99.37

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Wyatt Volkman LLD

Last Updated:

Views: 6517

Rating: 4.6 / 5 (46 voted)

Reviews: 85% of readers found this page helpful

Author information

Name: Wyatt Volkman LLD

Birthday: 1992-02-16

Address: Suite 851 78549 Lubowitz Well, Wardside, TX 98080-8615

Phone: +67618977178100

Job: Manufacturing Director

Hobby: Running, Mountaineering, Inline skating, Writing, Baton twirling, Computer programming, Stone skipping

Introduction: My name is Wyatt Volkman LLD, I am a handsome, rich, comfortable, lively, zealous, graceful, gifted person who loves writing and wants to share my knowledge and understanding with you.