Dutch Bros (BROS +3.66%) stock dropped 22% in March according to data provided by S&P Global Market Intelligence. Investors might be concerned about how tariffs could affect the price of coffee beans, and on top of that, younger, riskier stocks are more prone to falling when the market is volatile.
The new, exciting name in coffee
Dutch Bros is a small but fast-growing chain of coffee shops headquartered on the West Coast but moving quickly throughout the country. It recently surpassed 1,000 stores and is live in 18 states.
Between new stores and same-store sales growth, revenue is increasing at double-digit rates. It was up 35% in the fourth quarter driven by new stores and same-store sales. It opened 32 new stores in the quarter and reported a 6.9% increase in same-store sales year over year.
It's also become highly profitable at scale. Contribution margin, which is like operating margin at the restaurant level, expanded from 26.5% to 28.9% in the fourth quarter, and net income increased from $3.8 million to $6.4 million.
Management is expecting to accelerate store openings in 2025 from 151 last year to around 160 this year, and it has long-term goals of 20% annual revenue growth.
Huge growth opportunities
For a while, management had said it saw the opportunity for 4,000 stores. It recently got new management, and it's been making many changes, including what it sees as its market opportunity. Its new goal is to reach 2,029 stores by 2029, more than doubling its current store count, with the longer-term opportunity to reach 7,000 stores.
Another exciting opportunity is in packaged goods. It just announced a partnership with Trilliant Food and Nutrition to launch a new line of packaged coffee and other products to be sold at retail stores.
NYSE: BROS
Key Data Points
Dutch Bros stock had been hitting astronomical valuations before its recent fall, and it's a good lesson in why valuation matters. Highly valued stocks are most likely to drop when the market gets nervous. However, even down last month, Dutch Bros stock is still beating the market, up 20% year to date.
At the current price, it's still not cheap, trading at a forward one-year P/E ratio of 76. There's a chance it will go even lower, but you can't time the market. If you have some appetite for risk and a long time horizon, you can buy some shares at this price. You might want to use a dollar-cost-averaging strategy to open a position today and benefit from better prices at another point.
