Shares of Dutch Bros (BROS 5.78%) have fallen 25% or so from their February 2025 highs. That's a swift drawdown, but given that the restaurant chain is still fairly small and in its growth phase, seeing that kind of volatility isn't shocking. And it has to be juxtaposed against the price advance of more than 80% over the past six months, which is inclusive of the big drop.
This is not a stock for conservative investors, but here are three reasons why growth investors might want to buy it.
1. Dutch Bros is executing well in a desirable niche
Dutch Bros isn't really doing anything special in the restaurant niche. It just sells coffee, competing against brands like Dunkin' and Starbucks (SBUX +0.30%). Coffee is a staple for people, many of whom are willing to spend big bucks and wait in line for a long time to get their caffeine fix.
In other words, Dutch Bros isn't playing on some faddish food concept, hoping to gain enough traction to create a lasting business. It's simply trying to grab some share in an already established market.
Image source: Getty Images.
That said, customers seem to like the Dutch Bros brand: Same-store sales have grown in seven of the last eight quarters. And while the number of transactions at the company's stores fell in 2023 by roughly 4.5%, that was likely driven by inflation-driven price increases. Overall, the same-store sales figure was still positive for the year.
In 2024 transactions stabilized, down just 0.1% for the year, hinting that Dutch Bros managed to push through the price increases it needed while still retaining the vast majority of its customers.
By contrast, larger coffee chain Starbucks has been having a lot more trouble with its business, with same-store sales down 2% in 2024 and a 4% decline in transactions. That makes Dutch Bros look like it's executing at a high level right now.
2. Dutch Bros is opening lots of new stores, which will drive growth
Executing well in the core business is the foundation for the story here. But that's not where the company's growth is going to come from: The real growth driver is new stores.
In 2024 the company opened 151 new locations, pushing its store count up by 18% to 982. Same-store sales growth of 5.3% in 2024 added a little to the top line, but that impact is vastly overshadowed by the impact that a raft of entirely new locations can have.
To put a number on that, the top line on Dutch Bros' earnings statement expanded by a massive 32.6% in 2024. That's a growth rate that can only go on for so long, of course, since the larger the company gets, the harder it will be to grow. But the company is expecting to open at least another 160 locations in 2025, which would translate into store-count growth of 16%.
In other words, if all goes according to plan, there's another year of outsized growth ahead for Dutch Bros' business.
NYSE: BROS
Key Data Points
3. Dutch Bros likely has a long runway for growth ahead
Dutch Bros has less than 1,000 locations. Starbucks has more than 38,000. Even if Dutch Bros only manages to grow to a quarter of the size of Starbucks, it still has massive growth ahead.
Right now, Starbucks has operations around the world; Dutch Bros has locations in just 18 U.S. states. Clearly the first order of business for Dutch Bros is to expand to the rest of the country. This will likely provide years of growth. But even after that, it could take its business to the next level by opening up in foreign markets.
The stock has risen sharply, but if you're a growth investor, the long-term growth story here remains very attractive.
Dutch Bros will be exciting
The big share-price decline over the past month or so probably won't be the only time this stock gets hit by a swift drawdown. Smaller growth stocks often chart an irregular path higher, punctuated by painful price drops along the way. Thus, only more aggressive investors should probably be looking at Dutch Bros.
But the company is executing well in a well-established food niche, it's opening stores at a rapid clip, and there's still a long runway ahead for more store openings. There's a lot to like about Dutch Bros' story, if you can handle the risk of investing in volatile stocks.
