Dutch Bros Shares Surge on This Potential Growth Driver. Is It Too Late to Buy the Stock?

Dutch Bros (NYSE: BROS) shares skyrocketed higher after the coffee shop operator reported better-than-expected Q3 results and increased its guidance. The stock is now up more than 40% on the year as of this writing.

The question on investors' minds is, can this momentum continue, or is it too late to buy the stock? Let's take a closer look at the company's most recent earnings and long-term prospects to help answer this question.

Another beat-and-raise quarter

Last quarter, investors shrugged off a strong quarter from Dutch Bros after the company announced it was recalibrating its real estate model to make sure it was developing the best sites. However, this quarter's strong results were met with cheers from investors as the company said it will accelerate its store openings in 2025 and 2026.

For its third quarter, revenue jumped 28% year over year to $338.2 million, beating the analyst consensus of $325.1 million. Adjusted earnings per share climbed 14% to $0.16, which was above the $0.12 analyst estimate.

Same-store sales increased 2.7%, with company-operated same-store sales rising 4%. Same-store transactions rose 0.8% and 2.4% for company-owned shops.

Dutch Bros opened 38 new coffee shops in the quarter, of which 33 were company owned. It had 950 locations as of the end of Q3, of which 645 were company owned.

Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 20% year over year to $63.8 million.

Looking ahead, Dutch Bros once again raised its full-year forecast. It is now guiding for revenue of between $1.255 billion and $1.260 billion and adjusted EBITDA of $215 million and $220 million. It is expecting same-store sales of 4.25% for the year, and up 1% to 2% for Q4.

Below is a table of the company's recent guidance:

Data source: Dutch Bros.

Dutch Bros is looking to open 150 new stores this year, which is at the low end of its prior 150 to 165 forecast. However, it said it would open at least 160 stores in 2025 and accelerate its new store openings even more in 2026.

Image source: Getty Images.

Is the stock still a buy?

More than anything Dutch Bros is an expansion story, which is why investors cheered the company's report, as it looks to begin ramping store growth back up in both 2025 and 2026. The company's stores have a small footprint focused on drive-thru orders, so they are relatively cheap to build, which is a nice advantage. Despite that, they have strong average unit volumes of $2 million, which shows Dutch Bros is getting a lot of sales from these small shops.

In addition to expansion, Dutch Bros has other growth opportunities in front of it. It just recently began taking mobile orders, bringing the option to 90% of its stores at the end of September. While in its infancy, it has seen solid traction, accounting for 7% of orders currently. Meanwhile, it also began testing more food offerings in six shops in the quarter. Food is only 2% of sales and the company sees the opportunity to expand this through testing.

From a valuation standpoint, the stock trades at a price-to-sales ratio of 3.5, which is above the 2.7 of rival Starbucks.

BROS PS Ratio (Forward 1y) data by YCharts

However, Starbucks' strong expansion days may be behind it; meanwwhile, with 950 stores, Dutch Bros is still just scratching the surface of its expansion potential. With its stores relatively inexpensive to build and new store openings covered by its operating cash flow, the company has a long road of expansion ahead that could last 10 to 15 years. For its part, it is looking to scale to more than 4,000 shops over this period.

I've been bullish on Dutch Bros in the past, including last month when I named it one of three stocks I'd pick up while its shares were on sale. Its valuation and stock price are now much higher than they were last month, but I think the long-term growth story is intact and the stock should be a winner for long-term investors.

As such, I don't think it's too late for investors to buy the stock despite the surge in share price.

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Geoffrey Seiler 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.