Investors often grapple with the question of whether it's too late to buy a certain stock after it has had a nice run or after a sudden jump in the stock price. Some investors doubtlessly felt like it was too late to buy Starbucks (SBUX +1.67%) in 2012, when the stock had climbed from under $5 a share during the financial crisis to over $30 a share just four years later. But an investor at that point would not have been "too late" to hold the stock, as it climbed to about $120 a share over the course of the next decade.
Recently, I have heard a few people asking if it's too late to buy Dutch Bros (BROS +5.61%) after the stock has staged a 124% rally off of the 52-week low that it hit earlier this summer when growth stocks seemingly bottomed out.
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First steps of the journey
Dutch Bros is opening new stores at a prodigious rate, but there are still only 603 Dutch Bros in the United States. Dutch Bros is still in the early stages of its journey of becoming a nationwide brand. CEO Joth Ricci says that one of the company's key objectives is to grow to 4,000 locations over the next 10 to 15 years.
For perspective, Starbucks has about 17,000 stores in the United States, and approximately 34,000 worldwide. Right now, Dutch Bros is focused on the key markets of Southern California and Texas. Dutch Bros has opened 61 new stores in the Lone Star state over the past 18 months. A handful of new shops and planned openings in Tennessee represent Dutch Bros' easternmost territory, meaning that the entire Midwest and East Coast of the United States stand before it as potential new markets. Dutch Bros has a long way to go and will need to execute on its strategy for years to reach its goal, but this also illustrates how much runway is ahead.
Dutch Bros is utilizing its newfound scale to leverage technology and build out its Dutch Rewards membership program. Dutch Bros can use the app to reengage with customers who haven't visited in a while and to create personalized promotions, levers that help it to increase traffic and sales.
The company is also growing revenue 44% year over year and at a 26.7% compound annual growth rate (CAGR) over the last five years. If the company can keep growing revenue like this while using its growing scale to create more profitability, the stock will likely be worth much more than it is today.
NYSE: BROS
Key Data Points
Dollar-cost averaging is your friend
Even if you are worried about buying at a near-term "top," investors can utilize dollar-cost averaging to their advantage. Let's say that you intend to buy 100 shares of Dutch Bros and it is trading at $45 a share today. Instead of buying all 100 immediately, an investor can buy a third of the position today. Let's say Dutch Bros then falls to $40 a month from now; you can then put more of the money to work and buy even more shares for the same amount of money invested, lowering your cost basis in the process. Finally, imagine Dutch Bros is still at around $40 a month later, you can buy your last tranche and lower your cost basis even further. This helps investors to mitigate risk, smooth out volatility over time, and improve cost basis. You don't have to do everything all at once or go "all-in" on an investment; you can always dip your toes in the water with a starter position and then layer into the position with additional periodic buys over time.
There will be days that the entire market sinks a couple of percentage points based on macro reasons that have nothing to do with Dutch Bros, which will create the opportunity to add shares at lower prices than their recent highs. Trees don't grow to the sky indefinitely, and even the charts of the best-performing stocks show plenty of pull-backs along the way.
A long journey
It's really never too late to buy shares of a high-quality name that is growing earnings and revenue, and making the right investments to keep growing and creating shareholder value in the future. Investing is a long game, and investors should be thinking about where these companies will be 10 years from now, not where the share price will be in a month. Dutch Bros is building out its store count, growing revenue at a nice pace, and generating customer engagement with its rewards program. It is still a long way from now to where Dutch Bros wants to be, so investors can benefit from building a position over time utilizing dollar-cost averaging.
