Dutch Bros Is Up Over 65% in the Last Few Weeks. Is It Too Late to Buy?

Dutch Bros (NYSE: BROS) stock has surged 65% higher since the beginning of November as its greatly improved financial results have attracted more attention. Even though it trades approximately one-third below its post-IPO high in late 2021, the gain is intriguing since coffeehouses operate in an environment with numerous independents, privately held chains such as Dunkin', and the massive presence of Starbucks.

Despite that intense competition, Dutch Bros presents a unique opportunity for coffee stock investors. Amid the chain's potential for expansion, the recent spike in the stock price could be just the beginning. Here's why.

The growth path of Dutch Bros

If one follows the history of Starbucks or Walmart, they know how much a regional to national expansion can boost a stock over time. Fortunately for Dutch Bros shareholders, it is likely on the same path.

The enterprise has expanded to 950 shops in 18 states as of the end of the third quarter of 2024. Investors should also note that when its stock peaked in 2021, the company operated just over 500 shops.

Admittedly, this is a tiny fraction of the approximate 40,000 Starbucks global locations, about 17,000 of which are in the U.S. Still, with Dutch Bros' substantially smaller size, investors can still benefit significantly from its future growth, even if it stays within the U.S.

Also, unlike Starbucks, every Dutch Bros location is a drive-thru. While that places more pressure on Dutch Bros to offer an appealing, high-quality product, it also means it does not have the added overhead of indoor seating areas, helping to reduce costs.

Additionally, the expansion is on track to continue. On the Q3 2024 earnings call, CEO and President Christine Barone announced plans to add at least 160 shops in 2025. Barone has also previously stated that she expects it will eventually operate 4,000 or more shops, which should enhance its profitability as it expands its reach and product offerings.

Where Dutch Bros stands financially

Not surprisingly, that level of growth has had a profound effect on Dutch Bros' financials. In the first nine months of 2024, same-shop sales increased by more than 5%. That and its shop additions led to revenue of more than $938 million during the period, a yearly increase of 32%.

Operating expenses grew by 27% over that period. That meant the net income for the first three quarters of 2024, which was $60 million, more than quadrupled from the $14 million in the same period in 2023.

However, the stock could face some near-term headwinds on account of its recent increases. The stock has doubled in value over the last year, with most of that increase occurring after the beginning of November.

Moreover, the 30% revenue growth forecast for 2024 is expected to slow to 20% in 2025. While that is still rapid growth, it is a slowdown on a comparative basis. With the stock trading at a forward P/E ratio of 123, the slowing growth could cause investors to question whether the stock's price has moved ahead of its fundamentals.

Also, the company's valuation has begun to rise when measured by its revenue. At a price-to-sales (P/S) ratio of 4.3, it is more expensive than Starbucks, which trades at 3.1 times sales. Such an increase may make investors more hesitant to buy, which could bode poorly for the stock in the near term.

So, is it too late to buy Dutch Bros stock?

Fortunately for prospective investors, the short answer is it is not too late to buy.

Despite the massive increase in recent weeks, Dutch Bros is a relatively inexpensive stock if measured by sales. Also, investors should remember that it still trades around one-third below its record high, presumably leaving some room for growth.

Admittedly, the recent surge in the stock price increases the odds of a near-term pullback. Hence, investors should consider dollar-cost averaging rather than buying a large number of shares all at once. However, with the company less than one-fourth of the way through its planned expansion, investors can still benefit from years of additional growth.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks and Walmart. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.