Why Dutch Bros Fell as Much as 13.1% This Week

What happened

Shares of Dutch Bros (BROS 0.04%) fell as much as 13.1% this week, according to data from S&P Global Market Intelligence. The coffee and drink chain had no official news releases; however, it did report strong earnings last week that sent shares higher. It is possible that traders sold the stock to lock in these gains. Plus, investors may have been nervous with some insiders selling their shares. As of 1:20 p.m. ET on Friday, shares of Dutch Bros are down 12.7% this week.

So what

On Aug. 10, Dutch Bros reported earnings for the second quarter. Its financials looked strong, with revenue up 44% year over year to $186.4 million and trailing-12-month systemwide sales hitting $1 billion. The coffee chain also opened 31 new locations as it further expands across the United States. 

Investors cheered this news, sending shares of Dutch Bros higher last week. With 20% of its float sold short according to Yahoo Finance, it is also possible a short squeeze drove some of the gains in the days following the report. Heading into this week, it is plausible we had a reversal of what happened the week before, with people selling their gains and short-sellers re-entering their positions.

The only other notable development from Dutch Bros this week was some insider selling from executives. The CEO, CFO, and COO all sold some shares earlier this week, which they had to disclose in filings with the Securities and Exchange Commission (SEC). While likely not a big deal, this could have put further selling pressure on the stock and scared other traders into selling as well.

Now what

It is unclear exactly what drove down Dutch Bros shares in the last few days. But taking the longer-term view, the business is a bit of a mixed bag. Management expects to have 130 shops opened by the end of 2022, 110 of which are company-owned, leading to total revenue of $715 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to be $90 million this year, showing how profitable selling premium coffee and caffeinated drinks can be.

On the negative side, same-store sales growth is expected to be flat this year, and capital expenditures are expected to hit around $200 million. Dutch Bros is spending a ton of money to expand its store base, which will eat into its ability to generate free cash flow. At a market cap of $6.62 billion, the stock trades at a forward price-to-earnings (P/E) ratio of 73 based on its adjusted EBITDA guidance. This is expensive no matter how you slice it, and may mean you should avoid Dutch Bros stock at the moment.