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What to Like About Dutch Bros Stock

By Jon Quast and Danny Vena – Nov 10, 2021 at 7:28AM

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The business fundamentals are strong, so it's easy to see why this is one of 2021's most successful IPO stocks.

In September, regional coffee chain Dutch Bros (BROS 4.82%) went public in a wildly successful initial public offering (IPO). Not only did the stock pop over 60% in its first day of trading, it now trades roughly three times higher than where the IPO priced at $23 per share.

Fool contributor Danny Vena understands why investors might be excited about Dutch Bros. In this video clip from Motley Fool Backstage Pass, recorded on Oct. 25, Danny lays out some of his favorite things about the company, including its secret menu and strong financials even during the COVID-19 pandemic.

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Danny Vena: I'm going to go ahead and move on to the company that I'm covering here. This is one that I covered initially for the IPO Trailblazer service, I covered it and one of my weekly write ups. It's one that I think is pretty fascinating here. I'm going to go ahead and share my screen.

The company that I'm going to talk about is Dutch Brothers, that's Dutch Brothers Coffee. For those of you who may not know, this is a regional coffee chain that was focused on drive-through. They have been remarkably successful as they've been expanding. They originally had 254 locations in seven states going back about five, six years ago. That number is nearly double now, 471 locations in 11 states.

A couple of things that I thought were worth highlighting here. If you look at their revenue for the first six months of 2020, it's up 51%. That's pretty incredible considering that last year, they actually did remarkably well during the pandemic. They had 37% growth for the full year last year, so this is not necessarily from easy comps. I thought that was pretty impressive.

Also they had net income of $5.3 million during the first six months of this year. Now, that's up 11% compared to the same period last year, but they were able to remain profitable during the pandemic, which I thought was pretty impressive.

You can see that investors are impressed by the results thus far, the stock only went public about five weeks ago. What we're seeing right now is a stock that is up 92%, which is remarkable to me. However, we've seen some of that before.

I'm going to move on to the next slide here. Now, Dutch Brothers has several different secrets to its success. The company serves hot and cold espresso drinks, cold brews, it's got its own energy drink, Blue Rebel, tea, lemonade, smoothies. The company said in its regulatory filings that it offers cutting-edge flavors and it also has a secret menu. For folks who are regulars there and go to the place on a somewhat regular basis, they have secret concoctions that they can go ask for, so I thought that was pretty interesting. They talk a lot in their S-1, in their Securities and Exchange Commission filing prior to their IPO about their high energy atmosphere and the folks that they have working for them.

Fourteen successive years of positive same-store-sales growth. That is a really impressive number to me because if you go back 14 years, that goes back 14 years ago, we're talking 2007. We're talking 2007-2021. That means they had positive same-store-sales growth during the great recession and also during the events of last year. That provides some context that I thought was important.

Now, the next couple of bullet points here, we're talking about this as data that was provided by Placer AI, and this is a company that focuses on foot traffic in retail establishments. They released some data that said compared to a base period of October 2019, and using that as a baseline, visits at Dutch Brothers Coffee were up more than 100% year over year, or period over that base period, for every month from March through September of this past year.

Now, to put that in context, they also gave us the data from Dunkin' and Starbucks (SBUX 0.24%). During the same period, Dunkin' visits were up 7.4% on average, while Starbucks visits were actually down 5.4%. Now, a lot of that has to do with the fact that we're going back to the beginning of this period that we're talking about, March to September. We still have a lot of the country that was still on lockdown more or less, people not getting about their regular lives yet. Now, folks are getting out, there's more things that are going on.

It's important to note that this is from a much smaller base. Again, this is a company that only has about 500 stores compared to the numbers that they said was more than 15,000 for Starbucks. I tend to think that number is actually a little bit higher. But I just wanted to highlight, this is something that I'm really impressed by some of the history of this company. The way that they're focusing a little bit differently on basically carving out their own niche, focusing more on the drive-through rather than having a third-place, like Starbucks. Wants to be your third place: work, home, and Starbucks. Then the fact that they are creating their own tricks that their customers tend to rave about. It's still very early on in the game for Dutch Brothers. But certainly one that I'm keeping an eye on, the fact that the stock has doubled over the past five weeks gives me a little bit of pause. But I like the underlying financial metrics and customer metrics that I'm seeing from this company.

Jon Quast owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

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