Shares of West Coast drive-through coffee and beverage chain Dutch Bros (BROS -1.29%) rallied 13.4% last week. In the holiday-shortened week of market trading, Dutch Bros shook off an atrocious June and started the summer quarter with a respectable rally.
There was no specific news from Dutch Bros to cause the stock-price jump. However, after getting off to a hot start as a publicly traded company in the second half of 2021, it's been rough going for the coffee shop operator and franchisor. Shares are currently down nearly 60% from the all-time high hit earlier this year.
Dutch Bros is still growing at a fast clip. However, inflation has also been hot this year, and restaurant and hospitality businesses are taking it on the chin as things like food and packaging soar in price. In addition, the U.S. Federal Reserve is raising interest rates to try to combat inflation, and these rising rates lower the present value of risk assets -- especially high-growth stocks like Dutch Bros.
In spite of concerns and a depressed stock price, though, Dutch Bros actually raised its outlook for store growth for 2022 during its Q1 earnings update. The chain is winning over fans because of its fun atmosphere and company culture that helps put employees on a path to franchise ownership -- which no doubt contributes to the high-energy and friendly vibe customers are greeted with. If you've been to a Dutch Bros, it isn't hard to imagine that stores will continue their expansion across the country.
Here's the rub at this juncture: Dutch Bros isn't profitable yet, and it doesn't exactly have deep pockets, with cash and short-term investments of $26.8 million and total debt of $125 million as of the end of March. Prospective shareholders need to weigh Dutch Bros' fast growth and asset-light franchising model against its current money-losing and commodity inflation situation. By some measures, this could be one cheap stock -- shares currently trade for just over three times trailing-12-month revenue. But expect an above-average volatile stock in this present market that punishes companies that operate in the red.
If you decide to invest in this upstart coffee brand right now, strap in for a wild ride ahead.