Dutch Bros could have plenty of room to grow over the next few years.
Dutch Bros (BROS 0.07%) went public at $23 a share on Sept. 15, 2021. By Nov. 1, the drive-thru coffee-chain’s stock had more than tripled to a record closing price of $76.25.
At the time, the bulls were dazzled by the company’s rapid growth. The buying frenzy in growth and meme stocks also caused investors to overlook its soaring valuations.
Today, however, Dutch Bros’ stock trades 30% below that level at about $53. The bulls retreated as the company’s growth cooled off and rising rates squeezed its valuations. Let’s see why that pullback might represent a good buying opportunity for growth investors.
Image source: Dutch Bros.
What happened to Dutch Bros over the past four years?
Dutch Bros opened its first drive-thru store in 1994 and started franchising its locations in 1999. Prior to its initial public offering (IPO), it had already expanded from 254 shops in seven states at the end of 2015 to 471 shops in eleven states at the end of June 2021.
By the end of September 2024, it had more than doubled its store count to 950 locations with 645 company-operated stores and 305 franchised stores. Its company-owned stores accounted for 91% of its revenue in the first nine months of 2024.
Over the past four years, Dutch Bros consistently grew its same-shop sales (at its locations open for at least 15 months), opened new shops, and grew revenue at high double-digit rates. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins also expanded as it stayed profitable on a generally accepted accounting principles (GAAP) basis for nearly the past two years.
Metric | 2021 | 2022 | 2023 | 9M 2024 |
|---|---|---|---|---|
Total revenue growth (YOY) | 52.1% | 48.4% | 30.7% | 31.8% |
Same-shop sales growth (YOY) | 8.4% | 1% | 2.8% | 5.2% |
Total shop-count growth (YOY) | 22% | 24.7% | 23.8% | 19.6% |
Adjusted EBITDA margin | 16.5% | 12.3% | 16.6% | 19.3% |
Net profit margin (GAAP) | (24.3%) | (2.6%) | 1% | 6.4% |
Data source: Dutch Bros. YOY = year over year.
The impressive expansion was driven by its “fortressing strategy” of flooding areas with new stores instead of using expensive marketing campaigns. That cost-efficient tactic has enabled it to grow in the U.S. market as Starbucks and other larger coffee chains struggled. By comparison, Starbucks’ U.S. and North America comparable-store sales declined 2% in fiscal 2024 (which ended in September 2024).
Dutch Bros also raised its prices over the past two years to counter inflation, but those price hikes didn’t meaningfully throttle its top-line growth. That pricing power suggests it will keep growing in Starbucks’ shadow for the foreseeable future.
For 2024, Dutch Bros expects total revenue to rise 30% and same-shop sales to grow 4.25%. It plans to open 150 new shops for the full year and expects adjusted EBITDA margin to expand year over year to a midpoint of 17.3%. Analysts expect its GAAP net income to soar from $10 million in 2023 to $43 million in 2024.
Looking ahead, Dutch Bros expects to accelerate its expansion to 160 new store openings in 2025 and further accelerate its openings in 2026. It aims to more than quadruple its total store count to about 4,000 locations within the next 10 to 15 years.
The company also plans to expand its menu by adding more sweet and savory food options. It only generates about 2% of its revenue from food right now, but that business could grow and complement its coffee business over the next few years.
It’s a reasonably valued growth stock
With an enterprise value of $6.4 billion, Dutch Bros still looks reasonably valued at four times next year’s sales and 24 times adjusted EBITDA. If you believe the company can achieve its ambitious long-term growth plans, it might be a great time to buy the stock.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
