With the market in turmoil, investors have been running to safe stocks like Coca-Cola and Kroger. So it may be surprising that Dutch Bros (BROS 5.87%) stock is crushing the S&P 500 this year.
Dutch Bros is a young growth stock, and these kinds of stocks typically plunge in a volatile market. But the investing thesis remains intact and looks compelling despite the grim economic environment. Here are three reasons investors can't get enough of this stock, and why you might want to buy it right now.
1. Massive expansion opportunities
Dutch Bros has been around for decades as a small chain of coffee shops headquartered in Oregon. A few years ago, its founder-leaders embarked on an expansion plan and took the company public. The company has doubled in size since its initial public offering (IPO) in 2021, surpassing 1,000 stores in the 2025 first quarter after opening 151 stores last year.
For a while, management had been ambitiously projecting reaching 4,000 stores in about 10 to 15 years. That's an accelerated rate of store openings, and it has been meticulously upgrading its real estate strategy to determine consumer demand for store formats and ordering options. Its 2024 class of new stores already has 20% more volume than its 2023 class, and management attributes that to its new real estate model.
NYSE: BROS
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Management provided a new long-term outlook at its annual investors' day meeting last month, and it now envisions a total addressable market of 7,000 stores. It has shorter-term goals of reaching 2,029 stores by 2029, which, besides being a cute ambition, means doubling again over the next four years.
Right now, it's live in 18 states, heading north and east. The response throughout its expansion efforts has been positive, and if it can double store count over the next few years again, with even more opportunity in later years, it's a no-brainer for high growth for years to come.
2. Increasing same-store sales
Expansion opportunities aside, restaurants make more money by generating higher same-store sales. As customers get to know and like a coffee shop, they'll purchase more items and more frequently. As news spreads in a given region, more people will shop in a given store. Same-store sales growth tells you that stores are popular and have viable long-term growth opportunities.
Dutch Bros recently appointed a new CEO to take it from a small-time operator to a massive national chain, and the strategy is to keep its core values of speed, quality, and service that have attracted loyal customers while it iterates its model all over the country.
Same-store sales growth also leads to stronger margins, since companies can make fixed-store costs work harder per store. Dutch Bros' same-store sales growth has been accelerating, increasing 6.9% year over year in the 2024 fourth quarter, and transactions were up 2.3%. The transaction piece indicates people are buying more frequently, and that growth isn't coming from price increases alone.
CEO Christine Barone explained that the company has been using a three-pronged approach to boosting transactions. This includes innovation in beverage, which brings people back, paid advertising specifically focused on digital, and investing in the rewards program. In the fourth quarter, 71% of transactions came from rewards members, and as the company rolls out its new mobile ordering program, it offers new ways for loyal members to transact with the platform and generate higher engagement.
3. Soaring profits
Economies of scale are working in Dutch Bros' favor as revenue climbs. Sales increased 35% year over year in the fourth quarter, and net income turned from a $3.8 million loss to positive $6.4 million. As noted, fixed costs are covering more sales, and contribution margin, which measures how profitable it is on a store basis, improved from 26.5% to 28.9% year over year. At the investor day meeting, management provided a new outlook for long-term contribution margin of 30%.
Dutch Bros has massive opportunities, and it's delivering robust performance right now that inspires confidence in the market.
