What happened
Shares of Dutch Bros (BROS 0.04%) are rocketing higher this week, surging 34.1% compared to where they closed last Friday, according to data from S&P Global Market Intelligence, riding a meme stock wave of buying.
After it was reported that short interest in the coffee shop shot up almost 30% in the latest period, stock traders who populate various internet stock chat rooms piled into the stock. Shares are rising another 9% in morning trading on Friday.
Image source: Dutch Bros.
So what
Meme stocks, of course, are stocks that trade more on social media chatter than on business fundamentals, though in Dutch Bros' case the underlying business is pretty good, too.
However, after reporting first-quarter earnings last week that were affected quite harshly by inflation, which caused the coffee shop to lower its outlook for adjusted earnings and same-store sales for the year, the stock tumbled hard.
Shares that had been trading at almost $50 a pop at the start of May suddenly were going for as little as $20 after the earnings report. They began moving up slowly last week and into the current one, but when the short interest report came out, it was off to the races.
Now what
Unlike fellow meme stocks AMC Entertainment and GameStop, both of which also got a boost from the short interest report but are in the midst of trying to engineer turnarounds of their ailing businesses, Dutch Bros' business is generally quite healthy and growing.
The coffee shop remains in expansion mode, increasing the number of stores it says it will open this year from 125 to 130 locations. It also remains profitable on an adjusted basis and is still seeing strong comparable sales growth relative to 2019. In the current period it beat Wall Street expectations on the top and bottom line, but its outlook caused the market to sell off the stock.
Where it previously forecast full-year adjusted earnings before interest, taxes, depreciation, and amortization to come in a range between $115 million and $120 million, it lowered that guidance to be at least $90 million, which it said took into account "near-term pressures" and the fact it was taking some modest price increases this year.
Starbucks is experiencing similar pressures and suffered a 300-basis-point decline in operating margins. The concern is that rampant inflation coupled with higher prices is going to lower demand for the coffee shop stock.
