Dutch brothers (Bruce 0.32%) The stock seems to have started its life as a public company on the wrong foot. Today it is selling at a 68% discount to an all-time high shortly after going public in the fall of 2021.
However, even as investors were bidding up shares, Dutch Bros was aggressively moving toward a nationwide expansion plan, rapidly adding cafes and growing revenues. This growth, along with other factors, should bode well for coffee stocks over time.
The case of Dutch stocks Bros
Dutch Bros appears to have been a victim of the 2022 bear market. This was unfortunate timing on the company’s part as its shares were released near the peak of the bull market.
However, the stock price behavior appears to present the characteristics one might look for in a bear market stock. After a massive decline in 2022, Dutch Bros struggled to trade within a range as a sluggish economy weighed on investor confidence.
Moreover, the coffee market is highly competitive. Apart from the industry giant StarbucksIt also must compete with private chains like Dunkin’ and countless independent coffee shops. In addition to, McDonald’s It began building a beverage-focused chain called CosMc’s, and its first location in the Chicago area showed early signs of success.
In that environment, Dutch Bros stock has risen just over 10% over the past year, although at some points in early 2023 it was up more than 40%.
BROS data by YCharts.
However, Dutch Bros continued to operate as if it were unaffected by these challenges and continued to expand. By the end of the third quarter, its store count had risen to 794, adding 153 locations over the past 12 months, an increase of 24%.
Dutch Bros by the numbers
The company’s financial statements show the fruits of this expansion. In the first three quarters of 2023, revenue rose 32% year over year to $712 million. This included a 4% increase in same-store sales.
Furthermore, it started reporting profitable quarters in 2022, which mainly continued into the following year. In the first nine months of 2023, its net income was $14 million, compared to a loss of $16 million in the same period the previous year.
In short, even as its shares lose value, Dutch Bros is becoming more attractive – and that trend should continue. Management expects revenue between $950 million and $1 billion for 2023, which would amount to 32% growth in the middle.
Granted, its forward earnings multiple is currently 87, but that ratio is skewed by its recent shift to profitability. However, its price-to-sales (P/S) ratio is a more reasonable 2. This is also much cheaper than its competitor Starbucks, which has a P/S ratio of around 3.
Since Dutch Bros’ relatively smaller size allows for higher growth on a percentage basis, the coffee chain may present a more compelling investment opportunity than the market leader.
Consider shares of Dutch Bros
Dutch Bros shares are in a strong position to generate profit for investors. Even as investors sold shares, the company continued to press ahead with its aggressive expansion plans. Its recent shift to profitability and lower P/E ratio also makes the stock more attractive.
The company may face a more competitive landscape as competing coffee shops continue to emerge. But with Dutch Bros adding about 150 stores every 12 months, its rapid growth will likely see the stock price rise over time.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Starbucks. The Motley Fool has a disclosure policy.