The S&P 500 entered "correction" territory earlier in April after dropping nearly 20%. While it's recovered some gains as tariff fears have subsided somewhat, many favorite growth stocks remain heavily discounted. However, with the index averaging a total return of 18% in the year following the nine corrections since 2010, I believe now is the perfect time to buy these growth stocks on the dip.
Here's why I'm adding to my shares of the up-and-coming handcrafted-beverage chain Dutch Bros (BROS 0.58%), which is currently trading at 26% below its all-time high.
NYSE: BROS
Key Data Points
Dutch Bros' promising traits
Dutch Bros is home to 982 shops across 18 states and has quietly become one of the most interesting growth stocks on the market.
Offering infinitely customizable drinks -- iced coffees, Dutch Bros Rebel energy drinks, teas, lemonades, smoothies, and many other made-to-order drink creations -- the company stands in stark contrast to traditional coffee chains. In fact, 87% of Dutch Bros' drinks are iced or blended. Similarly, more than 50% of its sales come from categories other than coffee.
This differentiation, paired with the following four catalysts, makes Dutch Bros a stellar stock to buy and hold for decades.
1. Massive shop-count expansion prospects
The most straightforward reason for investors to be excited about Dutch Bros as a growth stock is its potential to add new drink shops. Although the company has expanded far beyond its home base in Oregon and now operates in 18 states, 57% of its shops exist in only three states: Oregon, California, and Texas. As it continues to expand beyond these three strongholds, management believes it could grow to roughly 3,500 shops in these 18 states alone.
However, Dutch Bros has ambitions far beyond merely filling in the white space in its existing states. Planning to build over 160 new shops in 2025, the company has committed to expanding into five new states: Louisiana, Georgia, South Carolina, Indiana, and Ohio.
Over time, management hopes to expand nationwide. It believes its long-term potential could be around 7,000 shops -- a sevenfold increase from today's figures.
2. A magnetic culture
The main reason I'm optimistic that Dutch Bros will continue to see success as it expands geographically -- other than the fact that its profitability has continued to improve despite its rapid growth -- is its incredible culture.
First, Dutch Bros was No. 4 on Forbes' 2024 list of America's Best Employers for New Grads. This was a higher ranking than Alphabet and Microsoft, which are generally considered premier destinations for graduates. Reinforcing the popularity of working at Dutch Bros is the fact that it received 550,000 applications for the 14,000 openings it had in 2024.
Furthermore, Dutch Bros took the No. 1 customer service spot away from Starbucks in 2025, according to Newsweek's annual rankings. This accolade shows that Dutch Bros' core values of speed, quality, and service clearly resonate with customers.
3. The Dutch Rewards program
Despite only being launched in 2021, the Dutch Rewards program already accounts for 71% of the company's transactions. While a bit unscientific, I think this metric shows that once customers enter the Dutch Bros ecosystem, they tend to remain loyal members.
Perhaps one of the biggest reasons this occurs is highlighted by an Egan Advisory Group research study, which shows that customers rank the company No. 1 in value for their money -- even beating out McDonald's. This value-conscious perception, paired with the company's core values and encouragement for customers to customize their orders, creates an offering that's hard for competitors to match.
4. Boosting throughput
While speed is already one of Dutch Bros' core values, don't think for a second that it can't improve its throughput and overall profitability. Early in 2024, it launched mobile ordering, and has ramped up that functionality to 99% of its company-owned stores.
These nascent mobile sales already account for roughly 10% of the company's sales, and should provide a boost to throughput and profitability as they become more prevalent. This is especially true because many Dutch Bros shops use "escape lanes" that allow customers to skip the rest of the line if their order is ready ahead of time, which could become the case for most mobile transactions.
Why the valuation makes sense
Despite remaining in hypergrowth mode -- increasing revenue by 33% and shop count by 18% in 2024 -- Dutch Bros delivered positive free cash flow (FCF) for the year. This positive FCF means that, even though management spent heavily on capital expenditures (capex) while building 151 new stores, its positive cash from operations (CFO) outweighed its capex spending.
BROS Cash from Operations (TTM) minus Capital Expenditures (TTM) equals Free Cash Flow: Data by YCharts.
Simply put, it funded its growth internally, rather than being forced to dilute shareholder value by issuing new shares or taking on new debt.
Best yet for investors, Dutch Bros isn't outrageously priced, at a price-to-CFO (P/CFO) ratio of 45. This valuation looks especially reasonable, considering the company's blistering growth rates and the fact that most of its shops are still relatively young and haven't yet reached their maximum cash-creation potential.
Furthermore, compared to a couple of its similarly young food and beverage peers, Dutch Bros' growth looks attractively priced. Whereas Cava's 29% sales growth rate is similar to Dutch Bros' 33%, the former's P/CFO ratio of 67 is far higher. Sweetgreen's P/CFO ratio of 51 is similar to Dutch Bros', but Sweetgreen only grew sales by 5% in its latest quarter. While these may be apples-to-oranges comparisons, they do show Dutch Bros' relatively attractive price compared to its similarly young, quickly-growing peers.
Ultimately, Dutch Bros' shop-count expansion prospects, top-tier culture, loyal members, and potential to improve throughput could all help the stock rapidly outgrow its current valuation.
