Dutch Bros (BROS 0.04%) went public just over a year ago in a bull market. There were 1,035 initial public offerings (IPOs) in 2021, a record, following 2020, which itself was a record high with 480 IPOs. In 2022, there's been a major IPO pullback; there have been only 174, with less than three weeks left to the year.

A large percentage of the 2021 IPOs were special purpose acquisition companies that still haven't taken a company public. From the remainder, the overall losses have not been pretty. But a few stand out as having really taken off, including Dutch Bros, which is up 40% from its IPO price of $23. Investors clearly see potential here.

However, it's down 12% from its first-day closing price of $43, and down 53% since its highs from last year. Does that spell opportunity?

Growing sales 

Dutch Bros has been able to post strong double-digit comps every quarter since it went public. The 2022 third quarter was no exception, with a 53% year-over-year sales increase to nearly $200 million. That's robust growth, especially at a time like this, and for a restaurant company. Coffee king Starbucks, for example, posted a 3% sales increase over a similar time period.

What's Dutch Bros' secret? It's pretty simple; it continues to open stores at a fast clip. It began 2022 with 538 shops and had 641 as of the end of the third quarter. It opened a record 38 stores in the third quarter and plans to end the year with another 30 or so for at least 130 total, and then has even more ambitious goals to open 150 in 2023.

Maintaining comps

A young growth company can be a very exciting investment opportunity because the potential is so acute. It's even more enticing when the company has demonstrated a working, efficient model that can be profitable, like Dutch Bros.

There's one metric, though, that looks risky here, and that's comparable sales. These were strong in 2021 but have so far been variable in 2022. They increased 1% in the 2022 third quarter against the backdrop of a 9.1% price increase. Considering the pressured operating environment and increasing costs, which necessitated some pricing action, it's not incredibly worrisome. But it's something to keep an eye on. 

Increasing profitability

Dutch Bros posted $1.6 million in net income in the third quarter, and the company's quick scaling, which makes better use of fixed resources, is contributing to stronger profitability. Newer shops are demonstrating higher volumes than the company average, and company-operated store gross margin improved over the past two quarters. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased nearly 33% over last year in the third quarter.

Future potential

Management sees the opportunity for 4,000 stores over the next 10 to 15 years. It's on track to reach at least 800 stores by the end of 2023, a goal set five years ago.

Since new store openings are fueling high growth, even in a tough economy, investors should expect that to continue for many years ahead. When the economy does recover, comps should improve as well and help raise sales growth even more. And since Dutch Bros already demonstrated that scaling improves profitability, that should get stronger as well. 


Dutch Bros has been expensive in its year on the market, but with a lower stock price as sales and income increase, the valuation is looking much more attractive. Shares trade at 2.5 times trailing-12-month sales, which is not at all unreasonable for a growth stock. At this price, and with its market opportunity, Dutch Bros looks like a compelling buy.