Coffee-centric restaurant chain Dutch Bros (BROS -1.04%) stock has only been traded publicly since September. However, its unique drink offerings have drawn attention to the company, and the stock price increased in an environment where many growth stocks have seen significant price drops.
However, the coffee market is competitive, and that is leading to questions about where this growth stock can go from here. A closer look at the company's beverages, work environment, and growth plans may offer some insight and help in making an investment decision about this trendy stock.
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The Dutch Bros experience
Dutch Bros is an Oregon-based restaurant chain founded back in 1992 that now operates more than 500 locations spread across 12 states, mostly in the western and southern United States. Its market cap currently stands at about $8.5 billion.
Dutch Bros has shown consumers that the market has room for new and innovative drinks. Its Dutch Classics (which it also calls breves) are cappuccinos that substitute half-and-half in place of whole milk and often include various flavorings. It also makes non-coffee beverages such as teas, energy drinks, smoothies, and lemonades.
Moreover, its stores are drive-thru only. This keeps costs low and has helped it operate in challenging environments such as the recent pandemic. This separates it from Starbucks (SBUX 0.47%), which amounts to an Americanized version of the Italian coffee experience. It also stands out from Dunkin' Brands, which still heavily emphasizes doughnuts despite the increased focus on coffee.
The company appears to have high satisfaction with customers and with its employees, which could caffeinate its growth. Amid labor strife at many Starbucks locations, Dutch Bros has stood out for its working conditions. It promotes "diversity, equity, and inclusion" and strives to address issues such as child care and employment-related stress to create a more pleasant work environment.
The company says this culture brings a "surprisingly high" number of applicants for open positions. This helped the company fill added jobs as the store count rose by 98 in 2021, ending the year with 538 shops.
How that has appeared in the financials
Those shops earned $498 million in revenue in 2021, 52% more than 2020. Still, its net loss increased to $121 million in 2021, down from a profit of $6 million in 2020. Stock-based compensation costs related to the September 2021 IPO led to the losses. When excluding stock-based compensation and other costs, adjusted net income came in at $48 million, down from $50 million in 2020. This is due mainly to a temporary drop in promotional costs in 2020 as the company temporarily suspended its loyalty program during the pandemic.
The recently reported lower income is probably a hiccup. Management predicts it will earn $700 million to $715 million in revenue in 2022, a 42% year-over-year increase at the midpoint. Additionally, management anticipates opening an additional 125 locations during the year, with a goal of growing to 4,000 locations in the next 10 to 15 years.
Investors have responded favorably, as Dutch Bros stock has risen 48% since launching its IPO. This far exceeds the performance of Starbucks, which lost 29% of its value over the same period. For this reason, the company's price-to-sales (P/S) ratio of almost 6 significantly exceeds the Starbucks sales multiple of just over 3. Still, with the recent performance and revenue increases predicted for the upcoming year, investors may overlook that higher cost.
BROS data by YCharts
Should I consider Dutch Bros?
The rapid growth pace and rising revenue of Dutch Bros make it an appealing choice. It has successfully carved out a niche in this competitive market, and the company continues to expand its footprint rapidly. Admittedly, it has only traded for a short time, but some investors might pass on it given the relative expense. Nonetheless, given the rapid revenue growth, it stands a good chance of continuing its piping hot performance for some time to come.
