Dutch Bros (BROS -1.04%) has likely frustrated its longer-term shareholders. Since its 2021 IPO, shares of the drive-thru coffee chain have fallen amid rising costs and an uncertain economy, even as it carries out a massive expansion plan.

Nonetheless, the lower stock price could change perceptions of the coffee stock. Three reasons may explain why it deserves a second look.

1. Expansion plans

The Grants Pass, Oregon-based coffee chain is now in 16 states and has increased its store count by 25% over the past 12 months. It has repeatedly outlined a goal of 4,000 shops, a plan reiterated in the Q3 earnings report.

Admittedly, that falls well short of Starbucks, which claims more than 38,000 locations worldwide. Still, if Dutch Bros meets that goal, the shop count will rise by more than fivefold, likely boosting its profits and, by extension, share prices.

Indeed, the expansion is helping drive its price-to-sales (P/S) ratio lower, which has tremendous implications for the company and its shareholders.

2. The addressable market

Between Starbucks, numerous privately owned franchises such as Dunkin', and independent coffee houses, one might assume that coffee is a saturated market.

So it might surprise investors that Grand View Research forecasts an 11% compound annual growth rate (CAGR) for the specialty coffee market through 2030. That bodes well for its specialty drinks like the Dutch Classic, which consists of espresso, half and half, and other ingredients.

Dutch Bros also sells other coffee beverages, as well as teas, smoothies, lemonades, and energy drinks. To this end, Grand View Research predicts an 8% CAGR for the energy drink market, which can serve as another revenue source.

Additionally, with the massive increase in shops and a 4% comparable shop sales increase, Dutch Bros is successfully meeting the demand for such beverages. As a result, revenue in the first nine months of 2023 totaled $712 million, up 33% over the same period in 2022. With the company focused on its total addressable market, this growth trajectory will likely continue for years.

3. Valuation

Dutch Bros began to report positive GAAP net income last year. In the first nine months of 2023, it reported a $14 million profit. Such results leave it with a price-to-earnings (P/E) ratio of 696 and a forward P/E of 118. Still, with relatively low profits, this measurement is likely not yet a meaningful reflection on valuation and certainly not one that will motivate prospective buyers.

However, the P/S ratio arguably makes the case for Dutch Bros stock. Its P/S ratio of 1.7 is significantly cheaper than the market leader in the space, Starbucks, which trades at more than 3.1 times sales.

Moreover, Dutch Bros opened 151 additional locations in the previous four quarters, taking its total to 754 shops. Such growth places downward pressure on the P/S ratio, increasing the likelihood that investors will respond by bidding share prices higher.

Consider Dutch Bros

Despite an uncertain economy, Dutch Bros has positioned itself well for growth. Thanks to the falling stock price, it also trades at an attractive sales valuation. Moreover, with the aggressive push to grow its shop count by more than fivefold and a significant addressable market in the coffee and energy drink spaces, the coffee stock should recover and prosper despite the competition.