Do you enjoy buying stocks that show potential when their prices drop? If so, consider purchasing shares of Dutch Bros, a coffee chain that's on the rise. Although it's currently down 56% from its peak in 2021, there's a chance it could rebound and reach even higher levels.
Many investors think the impressive growth it's experienced recently could continue for quite some time. However, let's address one thing before moving forward.
The Dutch Bros story
If you're not familiar with Dutch Bros, it runs 830 drive-thru coffee stands in 16 states and made $254 million in sales during the last quarter of 2023.
The coffee business is competitive, with giants like Starbucks and indirect rivals like McDonald's having locations almost everywhere Dutch Bros might want to open.
But Dutch Bros has its own advantage: it offers a more personalized experience for customers. Employees often know regulars by name, and stores support local community groups. Sometimes, workers even fundraise for fellow employees in need. The company focuses on creating a “people-first culture” that makes a big impact on its employees, customers, and communities.
The numbers show that Dutch Bros' approach is effective. Last quarter, its revenue increased by 26% compared to the previous year. This growth was partly due to a 5% increase in sales at existing stores, but mainly because of new store openings. A year ago, Dutch Bros had 671 locations, and it's been growing steadily for several years. Management expects this growth to continue in 2024, and analysts predict it will maintain this pace until at least 2028.
While it's a long-term goal, Dutch Bros aims to have around 4,000 stores eventually. This is ambitious but not impossible.
Additionally, Dutch Bros is making a profit, which is impressive considering its age, size, and industry.
This coffee drive-thru chain's competitive edge
Starbucks has set a high standard for coffee experiences, while chains like Dunkin' Donuts and McDonald's offer great value and convenience. However, being small has its advantages, especially for Dutch Bros, and it's not just about the obvious reasons.
In today's world, where digital apps often replace face-to-face interactions and friendly customer service is rare, Dutch Bros' unique personality stands out.
But that's not the only thing giving Dutch Bros an edge. Consumer preferences are changing, especially among younger generations who prefer authentic experiences and may avoid big, corporate chains like McDonald's and Starbucks.
Another advantage is that Dutch Bros' coffee stands haven't lost their appeal by becoming the go-to spot for older generations. Founded in the 1990s and just starting to gain widespread recognition, Dutch Bros is something fresh and unique for Gen Z and millennials.
As younger adults increase their disposable income, they're likely to continue supporting Dutch Bros as customers, helping the company grow as it expands.
The dust is finally settling
The reason Dutch Bros' stock is down nearly 60% from its peak in 2021 has to do partly with the timing of its initial public offering (IPO).
Although Dutch Bros has been in business since the 1990s, it only became publicly traded in September 2021. This was during the COVID-19 pandemic, when the world was still grappling with its effects. Despite the challenges, the stock market was thriving, and many people turned to investing as a form of entertainment. Investors were excited about new opportunities, leading to a surge in Dutch Bros' stock price from its IPO price of $23 to a peak of $81.40 in November 2021.
However, the enthusiasm didn't last. In 2022, the stock market experienced a downturn, and Dutch Bros' stock price fell along with it.
Now, the pendulum has swung too far in the opposite direction. Dutch Bros' stock is undervalued because the company's potential is being underestimated. This is a common trend after an IPO.
Despite the dip, the stock has shown signs of recovery, with a 40% increase from its 2024 low in February and a more than 50% increase from its all-time low in October. It recently hit a new high for the past 52 weeks, indicating that the market might be reconsidering its previous pessimism towards the stock.
Is Dutch Bros stock right for you?
While Dutch Bros' growth story is exciting, it might not be the right fit for every investor's portfolio. The company is still essentially a startup in many ways. It's investing heavily in expansion and will continue to do so. Additionally, in early March, it issued 8 million new shares at $29.05 each, increasing the total number of shares to just over 70 million. This dilutes the ownership of existing shareholders and adds to the stock's volatility. These factors contribute to the higher-than-average risk associated with investing in a company with a promising but uncertain future.
However, for investors willing to tolerate the increased risk and volatility, Dutch Bros offers the potential for above-average returns.
Should you invest $1,000 in Dutch Bros right now?
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you'd have $577,714!