What happened
Shares of coffee-chain Dutch Bros (BROS -1.04%) were up today after getting upgraded by an analyst. As of 3 p.m. ET, Dutch Bros stock was up almost 7%.
So what
Analyst John Ivankoe of JPMorgan upgraded Dutch Bros stock today to "overweight," which means he believes the stock has upside. According to TipRanks, Ivankoe downgraded Dutch Bros stock back in August, essentially believing shares were fairly valued at the time. However, it's down more than 30% since then, which apparently changed things for the analyst.
However, while Ivankoe upgraded Dutch Bros stock today, his new price target is just $38 per share compared to $48 per share before. This represents around 21% upside, as of this writing.
Now what
Dutch Bros is expected to report financial results for the third quarter of 2022 in November. When management gave its outlook in August, it wasn't overly optimistic. A key metric for companies like Dutch Bros is same-store sales (SSS) growth -- measuring sales per location from one year to the next. It's a great way to track consumer demand over time. But Dutch Bros expects flat SSS for 2022.
This isn't terribly surprising -- SSS were up sharply during the early days of the pandemic, which makes current comparisons harder. And consumers are getting squeezed by inflation, leaving less discretionary income for drive-thru beverages.
However, this isn't a metric Dutch Bros management is focused on. Rather, it's aggressively pursuing growth by opening new locations. It's on pace to open 130 new stores this year as it attempts to grow from around 600 stores now to over 4,000 someday.
New locations will be a big part of the Q3 narrative for Dutch Bros. But shareholders will need to monitor consumer demand nonetheless to make sure that management is scaling a brand that's still resonating strongly with consumers. Many restaurant stocks in the past have had ambitious growth plans only to see the brand lose its luster once it accelerated growth.
