Market Sell-Off: 1 Growth Stock Down 25% to Buy Right Now

With the recent market sell-off, a number of growth stocks have fallen from their highs. One such stock that could give investors' portfolios a jolt is Dutch Bros (NYSE: BROS).

The coffeehouse operator has a number of potential growth drivers over the next few years that should help power its stock moving forward.

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An expansion story

The biggest growth driver for most restaurant stocks is store expansion. This is what has propelled companies like McDonald's, Chipotle, and Starbucks (NASDAQ: SBUX) to where they are today.

On this front, Dutch Bros is very well positioned. The company ended last year with 982 locations, of which 670 were company-owned. Meanwhile, it currently operates in just 12 states, most of which are in the western part of the U.S. The farthest east it has expanded to is Tennessee, where it has three locations.

Oregon, where the company was founded, is its biggest market with 155 locations, followed by California with 149. By comparison, Starbucks operated 17,049 total locations in the U.S. at year-end. This included more than 3,000 stores in California alone.

Notably, Dutch Bros stores are very basic with most new builds falling between 800 square feet and 1,000 square feet. Most stores have no inside seating; they rely on a walk-up window and multiple drive-thru lanes. As such, the cost to build out a new location is not particularly high, and the returns are strong.

The company added 151 new stores last year, of which 128 were company-owned. It plans to increase that to around 160 new locations this year, which would represent about 16% unit growth. Most of this growth will come in the second half of 2025 as the company has worked to reevaluate and optimize its real estate strategy.

Now, expansion by itself does not ensure success. Donut shop Krispy Kreme rapidly expanded back in the early 2000s before having to declare bankruptcy. Restaurant operators must grow prudently, and Dutch Bros appears to be doing so, using its operating cash flow to build out its store base.

Dutch Bros has also enjoyed solid same-store sales growth with this metric jumping 6.9% last quarter. This was led by price increases as well as a 2.3% rise in transactions. Company-operated stores performed even better with comparable-store sales climbing 9.5% and transactions up 5.2%.

One driver has been the introduction of mobile ordering. While a bit late to the game, Dutch Bros now has mobile ordering capabilities in 96% of its stores. However, only 8% of its orders come from mobile devices, so this initiative has room to grow. It's also tying in mobile ordering with its loyalty program. This is a great way to keep in touch with customers and incentivize them to make frequent visits.

Dutch Bros' biggest opportunity to grow its same-store sales, though, is with food. The company only gets about 2% of its sales from food items, compared to nearly 20% for Starbucks. It has been testing new food concepts at several locations with good initial results. However, the company wants to make sure the new offerings don't impact its baristas' main jobs of making beverages and their throughput, as well as their job satisfaction.

The company has admitted that it has likely lost out on some business by not having a better food menu, particularly with people wanting food with their morning coffee without stopping at multiple places. The company is still in the very early days of testing food, but this could be a huge growth driver in the years ahead.

A good buying opportunity

The recent market sell-off has dropped Dutch Bros stock 25% below its all-time high, giving it a forward price-to-sales (P/S) ratio of 4.9 times analysts' 2025 estimate and 4.0 times their estimate for 2026. That compares to an approximately 3.0 multiple for Starbucks for both periods.

Data by YCharts.

Though Dutch Bros commands a premium, its growth opportunities over the next 10 to 15 years are also much greater than those for a mature operation like Starbucks. As such, this looks like a good entry point for investors bullish on this regional-to-national growth story.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Dutch Bros and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.