Starbucks has been going through a rough patch. Comparable-store sales growth -- an important metric for restaurants that measures revenue growth from existing locations -- has been negative for four straight quarters. It recently ousted its CEO and brought in ex-Chipotle CEO Brian Niccol to fix the mess.
Competitor Dutch Bros (BROS +5.64%) is having none of these issues. In fact, the coffee stand brand is likely stealing customers from Starbucks as it goes through a rapid expansion around the United States. Investors are eating up this growth, sending Dutch Bros stock up 47% so far in 2025.
Accelerating transactions growth
Dutch Bros reported its earnings earlier in February, and showed an acceleration in growth. Same-store sales growth was 6.9% in Q4, on top of 5% growth in 2023. Perhaps more importantly, Dutch Bros had transaction growth of 2.3% in the quarter, its highest quarterly growth in the last two years. This is the opposite of Starbucks, which is posting negative same-store sales growth and negative traffic growth to its stores.
Why do people enjoy Dutch Bros? Its drive-thru stand concept tries to make the coffee and drink experience fun, enjoyable, and quick for its regular customers. Its popular drinks such as blended coffees and energy mixes may not be the healthiest items in the world, but are very popular among younger customers who have become fans of the brand.
In 2024, Dutch Bros generated $1.28 billion in revenue, up 32.6% year over year. It now has 831 locations around the country, up from 671 at the end of last year. The brand is growing quickly, but still has a significantly smaller footprint than Starbucks and its tens of thousands of locations around the world.
NYSE: BROS
Key Data Points
National expansion opportunity
In 2025, Dutch Bros management expects to open at least 160 new shops around the country. This would put the total store count at around 1,000. While 1,000 shops may seem like a lot, this is just scratching the surface of the national expansion opportunity for the Dutch Bros brand. For reference, Starbucks has around 17,000 locations in the country.
It isn't like Dutch Bros was competing in places without Starbucks locations, either. The company started in the Pacific Northwest, which is where Starbucks was founded. Taking all this into consideration, it looks like Dutch Bros has the green light to expand to thousands of coffee stands across the country. It may take 10 to 20 years, but there is plenty of room for Dutch Bros to reach 4,000 or even 5,000 locations just in the United States.
This should excite investors around the potential of Dutch Bros stock.
Should you buy Dutch Bros stock?
After the recent stock pop, Dutch Bros stock now has a market cap of $11.8 billion. The stock is up 160% in the last year and up close to 3x since hitting a low in late 2023. These are high expectations for a company that only generated $1.28 billion in revenue last year.
Let's run some estimates to see if Dutch Bros valuation makes sense versus its long-term earnings potential. Assuming Dutch Bros can reach 3,000 store locations 10 years from now and expand its average store revenue of $2 million a year to $2.5 million, the company will be generating $7.5 billion in systemwide sales (not all will be recorded as net revenue, since the company does use a franchise model in some locations). With low operating costs on its stands, Dutch Bros is already able to achieve 30% profit margins at the restaurant level.
Add in some overhead costs, and I believe that Dutch Bros can hit 20% net income margins once it stops rapid expansion and sees some operating leverage. That equates to $1.5 billion in net earnings five years from now, or a single-digit price-to-earnings ratio (P/E) based on the stock's current market cap.
While shares might look expensive today, the growth story at Dutch Bros is far from over, and I think the stock could keep moving higher over the next five to 10 years if the national expansion strategy succeeds.
