A New King In Coffee?
People love their coffee.
I’m not one of them, but I can spot a trend when I see one.
Our area just got a new coffee shop a few months ago, and it’s packed.
We needed police officers directing traffic because it was so popular!
Months have passed, and it’s still jammed with customers.
There’s even a Starbucks and another local coffee shop down the street, but those places look like ghost towns right now.
I researched the new coffee shop and was pleasantly surprised to see it was a publicly traded company.
Dutch Bros. Inc (ticker: BROS) is taking the coffee world by storm.
Unlike other coffee shops, Dutch Bros is drive-thru only.
So, it’s able to serve customers much faster (and using less space) than the competition.
Dutch Bros also does more than just simple coffee.
The coffee shop has high-protein coffee, which has become very popular on social media.
Plus, Dutch Bros has its own energy drink brand, Rebel.
Dutch Bros is still small, with market analysts forecasting around a 3% market share for the company.
So, it has a ton of room to expand.
Dutch Bros operates around 1,200 locations, which is nothing compared to Starbucks’ and Dunkin’s’ 40,000 and 14,000 locations, respectively.
By 2029, Dutch Bros wants to operate over 2,000 locations and believes the market can handle the company operating over 7,000 locations.
Its growth is staggering, but it’s not just from increasing the number of stores.
Last quarter, Dutch Bros same-shop sales rose over 8%.
It means the word is getting out about Dutch Bros, and its existing locations are generating more revenue each year.
Let’s jump into Dutch Bros’ financials.
Dutch Bros’ 4.6% profit margin seems low, but it’s more than double the average for the restaurant industry.
And its revenue has grown on average by 10% each year since the company started trading in 2021.
Everything looks pretty great… until you get to its valuation ratios.
Dutch Bros’ price-to-earnings ratio (P/E) is over 80x, which is significantly higher than its competitors’ P/E/ ratios.
Even using the PEG ratio, which divides the P/E ratio by expected growth, Dutch Bros is still expensive with a 1.7x PEG vs. an industry average of 1.25x.
However, surprisingly, Dutch Bros’ current P/E ratio is a lot lower than its historical average.
So, is buying Dutch Bros a good idea?
The restaurant industry is interesting.
It’s a low-margin industry, but Dutch Bros is bucking the trend with its higher profit margin.
Its valuation ratios, like P/E and PEG are high, but the growth opportunity here is amazing.
Dutch Bros’ small size means it has plenty of market share to steal from larger companies like Starbucks and Dunkin.
And don’t forget its product mix of protein and energy drinks is really popular, especially among Gen Z and millennials.
Plus, its business model of focusing on drive-thru really appeals to busy customers looking to get their beverages as quickly as possible.
It’s certainly expensive, but if you’re looking for a stock pick riding a new trend, then give Dutch Bros a further look.
What high-growth stocks are you looking to buy?
Coach Parker
Category: Stocks
