Dutch Shares of Bros Coffee Company Soar High. Is the Purchase Opportunity Already Missed?
Dutch Shares of Bros Coffee Company Soar High. Is the Purchase Opportunity Already Missed?
Eager investors took notice of Dutch Bros' latest financial report, with the stock seeing a significant increase following the company's third-quarter earnings. The report showed better-than-anticipated results and an upgrade of the full-year outlook, pushing the stock price higher by 39% since its release on November 6.
At first glance, Dutch Bros' current share price, at a 169 price-to-earnings (P/E) ratio, may seem overvalued. However, considering the company's rapid growth stage, this ratio might not be as inflated as it appears. An in-depth analysis suggests that the stock's valuation might not be as expensive as it seems, with room for further growth in the coming years.
Here are some reasons why Dutch Bros stock might be worth considering for your investment portfolio:
Dutch Bros is maintaining a steady growth trajectory
Dutch Bros has continued to thrive, adhering to its long-term growth strategy. The company has consistently opened 30 or more new stores each quarter, leading to an average quarterly year-over-year revenue growth of around 30% over the past year. Although the growth rate slowed slightly in Q3, to 28% year over year, its same-store sales continue to impress.
Restaurants often expand by opening new locations, but the key factor is driving profitability from existing stores. In this regard, Dutch Bros has shown impressive resilience. The company experienced variable same-store sales during 2022, but since Q1 2023, it has reported seven consecutive quarters of growth, with a 2.7% increase in year-over-year sales in Q3.
Based on this momentum, Dutch Bros now anticipates same-store sales growth of around 4.25% for 2024, higher than the previous forecast of a low-single-digit increase. The company's impressive performance suggests it may be regaining its footing after setting a new transaction record in the past two years.
Dutch Bros has untapped opportunities for growth
Compared to its relatively limited presence in just 18 states (with less than 1,000 stores), Dutch Bros has significant potential for further expansion. Moreover, the company is planning to implement initiatives that can boost growth at its existing locations.
For instance, Dutch Bros recently launched mobile ordering at over 90% of its stores, with customers placing over 2.8 million transactions through October 31. This high adoption rate suggests both customer satisfaction and potential for continued growth.
Furthermore, the expansion of the Dutch Rewards program offers another avenue for growth. This loyalty program has had a positive impact on transaction growth, with mobile ordering driving an uptick in new reward registrations, which could further bolster same-store sales in the coming year.
The stock has room to climb
One of the most noteworthy aspects of Dutch Bros' growth strategy is its ability to expand while remaining profitable. In fact, the company's net income increased to $21.7 million in the third quarter, a significant jump from $13.4 million in the same period last year. This improving profit margin has contributed to the stock's rising price-to-sales (P/S) ratio, but Dutch Bros still trades at a modest 3.81 P/S ratio compared to leading competitors like Starbucks (3.15 P/S ratio) and Chipotle Mexican Grill (7.44 P/S ratio). Even Cava has a higher P/S ratio at 20x.
Given its strong growth and promising long-term prospects, I believe Dutch Bros stock is starting to garner the valuation it deserves. Investors can expect the shares to keep climbing in line with the company's growth, potentially leading to substantial returns as Dutch Bros continues expanding nationwide.
Considering the strong financial performance and growth potential of Dutch Bros, some investors might be interested in reallocating a portion of their money into this stock. The company's history of consistently opening new stores and maintaining a steady growth trajectory, coupled with its recent emphasis on digital initiatives, such as mobile ordering and a loyalty program, presents attractive opportunities for finance-savvy investors looking to boost their portfolios.