Coffee is a huge industry. After all, it's the second-biggest commodity in the world after oil, and every once in a while a new coffee stock comes out that captivates the market. That's the case now with Dutch Bros (BROS 1.25%), which has been stirring up a buzz. The coffee chain, which focuses on a drive-thru model, has been expanding quickly across the Western U.S. and has attracted a following on Wall Street.

The average analyst now believes the stock has 33% upside, and one sees room for the stock to nearly double. That's Bank of America's Sara Senatore who reiterated her price target of $53 and a buy rating for the stock even after a middling earnings report from Dutch Bros.

In a recent note on the stock, Senatore said the company was building momentum in same-store sales at the end of the first quarter, and she believes Dutch Bros can hit its guidance calling for low-single-digit same-store sales growth for the full year. Over the long term, she sees the company reaching $9.2 billion in revenue and $2 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA), which yields a $53 fair value after discounting back.

However, there are a number of obstacles for the company to overcome before it gets to those sales and EBITDA numbers.

A growth stock with slowing momentum

Dutch Bros is expanding quickly, and it's still priced like a growth stock in spite of falling 63% from its peak in late 2021, shortly after its IPO. The stock trades at a price-to-sales ratio of 2, but it's only minimally profitable on an adjusted basis, and its first-quarter earnings report pointed to some problems with the company's growth plans.

Dutch Bros is expanding quickly, adding 45 new stores during the period to bring its grand total to 716 locations across 14 states. Revenue jumped 29.6% to $197.3 million due to the rapid addition of new locations, but that growth came at the expense of existing stores; same-stores sales declined 2%.

Management said this was part of its fortressing strategy, meaning it opens new stores near existing ones in an attempt to establish a dominant position in a new market and increase customer awareness of its brand. But the cannibalization of existing stores is a questionable strategy, especially given that the company raised prices by 6%, so traffic at established stores fell even further than it appears.

On the bottom line, the company continued to improve its profitability, an encouraging sign, especially while it's expanding so fast. Adjusted EBITDA jumped from $9.7 million to $23.9 million, and it narrowed its generally accepted accounting principles (GAAP) loss from $16.3 million to $9.4 million.

The competition question

There's no shortage in recent stock market history of restaurant stocks that looked attractive in their early stages, only to fade out as they struggled to expand into new markets and drive profitability.

Those include Noodles & CompanyPotbelly, Zoe's Kitchen, and others in the last decade.

Dutch Bros aims to grow to more than 4,000 locations across the country, but it faces a heap of competition from established brands like Starbucks and Dunkin', as well as independent shops and regional chains. 

If it can hit that goal and drive solid profitability across the chain, the stock should be a winner from here, but the challenges in its same-store sales growth indicate that demand for the brand may already be maturing.

There's no shortage of companies that have tried to be the next Chipotle or the next Starbucks and failed. For now, Dutch Bros, with flagging comparable-sales growth, is still fighting an uphill battle -- and investors should treat the stock accordingly.