Where Will Dutch Bros Stock Be in 3 Years?

The Dutch Bros (NYSE: BROS) coffee chain has been around since 1992, but the company's nationwide expansion plan is pretty fresh. Dutch Bros entered the public stock market in 2021, planning to use the stock-based funds for an ambitious growth effort. Three and a half years later, the store count has more than doubled from 471 to 982. You can find its friendly drive-through Broistas in 18 states now, up from 11 in 2021.

But the coffee market is always a-changing. Can Dutch Bros keep up its ambitious growth plans while facing inflation-burdened consumers and rising coffee prices? Let's see how the company might develop over the next three years.

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Coffee prices soaring? Dutch Bros has a cold solution

Let's start with one of Dutch Bros' greatest business advantages: Its diverse menu makes the company less sensitive to higher ingredient costs.

Coffee prices have skyrocketed in recent years. The producer price index for roasted beans stood at roughly 170 from mid-2016 to the first few months of 2021. This crucial price index has soared to 258 by now, including a 16% jump in the last year alone.

These surging ingredient costs could be a problem, but Dutch Bros is doing fine.

"Although coffee prices rose throughout 2024 and into 2025, we did not see a meaningful impact on our margins in 2024," CFO Josh Guenser said in February's fourth-quarter earnings call.

He noted that continued price increases could result in a 1.1% boost to cost of goods sold, assuming coffee prices continued on the same trajectory. That hasn't happened, with a slight price drop in the March report, but is something to keep in mind for the long-term analysis.

It should be noted that Dutch Bros isn't all about coffee. Cold beverages such as custom-mixed energy drinks have been an important part of the menu for over a decade, accounting for 25% of total sales these days. The overwhelming majority of Dutch Bros' beverage sales are iced or blended, with only 13% of revenue springing from hot drinks in 2024.

Taking a page from Costco's playbook

The company is also ready to tackle higher wages -- a profit-sapping result of the American economy's inflation issues. Labor costs as a percentage of revenue held steady in 2024 but are expected to increase this year. So management will trade in some of the company's store-growth budget to make employees a little happier and more loyal. That seems like a smart move, given Dutch Bros' focus on friendly service. That's hard to deliver if employees can't make ends meet.

This strategy reminds me of a proven winner. Warehouse retailer Costco (NASDAQ: COST) is proving that strong wages and helpful benefits can support rapid business growth, at least partly thanks to a more efficient workforce. That's a pretty great example to follow. Costco's sympathetic workforce policies have resulted in market-beating stock returns in the last five years:

COST Total Return Level data by YCharts

The road to 4,000 stores

So Dutch Bros looks ready to continue its high-growth expansion tactics, despite economic challenges. The store count is expected to grow by roughly 160 locations this year, aiming for 4,000 drive-through windows by 2035. It's a data-driven ambition, supported by clever marketing and a wildly popular service. I'm also impressed by Dutch Bros' coherent expansion push, opening new shops in states neighboring existing locations. This should help the supply chain run smoothly as it grows over time.

Now, the stock is richly valued thanks to the company's high-octane sales growth. Many investors wouldn't touch a stock trading for 166 times earnings and 7.3 times sales, no matter how quickly the financials are improving. It's honestly a bit much even for me, a growth investor at heart. But the stock has backed down more than 34% from February's all-time peak, and I could imagine taking a sip of Dutch Bros stock if the correction continues.

Three years from now, Dutch Bros should have something like 1,500 stores across 25 or 30 states, and profits may rise as the company scales up its distribution and sales models. I can't promise that the stock will have climbed much higher by then, but the stage will be set for a great long-term growth story.

One of these days, Dutch Bros might even start exploring international markets. I sure want to see how this playful company might celebrate its first store in Amsterdam, you know. Global growth can be funny.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.