The market has taken some wild swings lately, as "tariff" and "recession" become the words of the day. No one knows what's going to happen in the short term, and the market is reflecting the uncertainty that many people are feeling right now. After a glorious 2024, the S&P 500 (^GSPC 0.16%) is down 5% this year, and the tech-heavy Nasdaq Composite (^IXIC 0.71%) is down nearly 10%.
Investors are turning to safe stocks like Coca-Cola and Kimberly-Clark. But some growth stocks are still on the go this year, outperforming the market now and with tons of potential. Consider Dutch Bros (BROS 0.88%), which has seriously outperformed the S&P 500 over the past year.
Meet the new coffee shop on the block
Dutch Bros has been around for decades, but it's remained a small chain of regional coffee shops for most of that time. Over the past few years, it has embarked on an expansion program and went public, and customers are buying.
As of the end of 2024, it has 982 stores in 18 U.S. states, up from about 500 stores when it went public in 2021, or nearly double in three years. It plans to open around 160 stores this year, and to reach its 10-to-15-year goal of having 4,000 stores, it's going to have to accelerate openings.
NYSE: BROS
Key Data Points
To make that happen, Dutch Bros recently made several important changes. Most importantly, the company has completely revamped its executive suite, starting with a new CEO. It's opening a large regional center in Phoenix to be more accessible to more of the country and have wider capabilities. It's reshaped its real estate program to find more cost-efficient and suitable locations, and it's carefully designing every store to meet each location's specific demands.
These actions are already paying off -- Dutch Bros is reporting solid growth and healthy profits. Revenue increased 35% year over year in the 2024 fourth quarter, and comparable growth, which hasn't been consistent, accelerated to a 6.9% increase. The company-operated shop contribution margin increased by 2.4 percentage points to 28.9%. That means that stores are running more efficiently. Net income increased from $3.8 million to $6.4 million.
The resilient coffee shop alternative
This is impressive growth at any time, but it's more impressive because inflation has made it more difficult for many companies to demonstrate high growth. Any custom beverage might be a luxury right now, but Dutch Bros' price point is easier on the wallet than other chains.
The company is making moves to create relationships with its customers and amplify its brand presence as it opens new stores. It just launched mobile ordering across its business, and about 8% of the channel mix came from mobile ordering in the fourth quarter, a steady and continual increase. Customers who use mobile have greater order frequency, and mobile penetration in new stores is more than twice the overall company rate.
Most stores are drive-thrus, and it's focused on speed, but it's experimenting with all kinds of store formats, including recently rolling out walk-up windows. In other words, it's in the right position to build up its store fleet with a forward-thinking, consumer-centric model.
Can Dutch Bros keep crushing the market?
Dutch Bros looks like it has a wide-open runway as it successfully expands into new regions and ramps up its mobile ordering program. As of now, it has a proven track record and presents a compelling investing thesis.
It's not cheap at the current price, trading at a forward one-year P/E ratio of 78, and there's a lot of confidence built into that price. But that's because the market senses an excellent long-term opportunity. If there are any missteps, the price could come down and present a better entry point. But if you can buy and hold for a few years, Dutch Bros stock looks like it could continue to outperform the market over time, and you can buy it today.
