Between 2019 and 2022, Dutch Bros (BROS 1.65%) saw its annual revenue skyrocket 211%, from $238 million to $739 million. This tripling of the top line in three years is more akin to a software company than a business that sells coffee at brick-and-mortar locations, and it helped push the share price up more than 100% in less than two months after the initial public offering. 

It appears that Dutch Bros found success in the extremely competitive restaurant sector, despite shares being down 20% for all time. However, the monster growth from this rising coffee stock comes with a caveat. And it should make investors think twice before deciding to buy shares

An extra shot of new stores 

To be fair, Dutch Bros has posted outstanding growth that is hard to understate. Its revenue rose at a compound annual growth rate (CAGR) of 46% over the last three years, which is impressive.

For comparison's sake, we can look at another fast-growing restaurant stock. Chipotle Mexican Grill increased its sales at a CAGR of 15% between 2019 and 2022. Even one of the best companies in the space significantly lags Dutch Bros' figures. 

But if we dig beneath the hood, it's evident that Dutch Bros' gains came primarily from opening new locations. From the end of 2019 to Dec. 31, 2022, the company added 301 net new stores (81% jump), bringing the total to 671. And the management team plans to open another 150 locations in 2023. 

This isn't necessarily a bad thing in isolation. For any restaurant or retail business, expanding the physical footprint is a worthwhile strategy, so long as the unit economics and the return on investment (ROI) are attractive enough. 

But if stores aren't achieving management's goal when it comes to ROI, it's probably not a good idea to continue opening new ones. Any business could keep opening stores aggressively for the sake of growth, but this would be destroying value, as that cash would probably be better served being returned to shareholders or seeking other investment opportunities. 

In this particular situation, shareholders should also be looking for meaningful same-store sales growth, otherwise known as comps. For Dutch Bros, this measures revenue gains at stores that have been open at least 15 months. During 2020, 2021, and 2022, Dutch Bros' comps increased 2%, 8.4%, and 1%, respectively.

This isn't anything to write home about. Starbucks, the giant in the industry with 15,952 stores nationwide, posted comps that declined 12% in fiscal 2020, but increased 21% and 12% in the U.S. in fiscal 2021 and 2022, leading to a better three-year gain than Dutch Bros. This tells me that Dutch Bros locations aren't performing at as high a level as you'd expect. 

A splash of skepticism 

The takeaway for investors is that it is always a good idea to understand where growth is coming from, especially if that growth has been so extravagant in an industry not known for those types of gains. In fact, being skeptical is a good perspective for investors to have when looking at different stocks to add to a portfolio. It can help to uncover hidden insights that further round out one's understanding of a company's trajectory. 

Dutch Bros shares have been under immense pressure, down 21% in the past month alone. And they currently trade at a price-to-sales multiple of 2.1, which is about as cheap as they've been.

Still, investors should think twice before buying the stock right now. If, however, top-line growth is solely what you are interested in, this stock could fit squarely in your radar.