After the stunning announcement earlier this week that the U.S. and China are bringing their tariffs back down, the S&P 500 is nearly back to where it started out the year. There's no way to know if it will keep climbing and hit new highs anytime soon or unravel again, but it's a big burst of confidence in the economy.
In the meantime, coffee shop chain Dutch Bros (BROS 3.13%) continues to outperform the market. The growth stock has incredible opportunities as it opens new stores and builds up its presence. However, it's plunged 18% over the past few months. Let's see why the market is spooked and whether or not this is a buying opportunity.
More coffee, please
Dutch Bros recently celebrated its 1,000th new store opening (this one in Florida), and it concurrently announced plans to open another 1,000 stores by 2029. It doubled its store count from around 500 when it went public in 2021 to where it is today, but it's still a bold statement to imagine doing that again over the next four years. It's planning to open at least 160 stores in 2025, so this ambitious plan implies that the rate is going to accelerate significantly over the next few years.
Image source: Dutch Bros.
Customers love the coffee, increasing confidence that it can reach this goal. It provided a further, long-term goal of reaching 7,000 stores. That was raised from its previous goal to reach 4,000 stores, and as it expands successfully, there's certainly a chance that even this goal could be surpassed.
Some recent metrics highlight why investors are so enthusiastic. In the 2025 first quarter, revenue increased 29% year over year, driven by 30 new stores and a 4.7% increase in comparable sales. Some of that was due to pricing, but transactions were also up 1.3%, a good sign of consumer engagement despite higher prices.
How it's winning new business
CEO Christine Barone attributes the success to three factors: innovation, marketing, and the company's rewards program.
Dutch Bros is known for its unique, customized beverages, and specifically for its cold drinks. It's had great success with recent launches like boba and protein coffee, and it recently rolled out a limited-time offer of popular cereal flavors to add to customized drinks. It's also piloting a new food menu in some locations. Food only accounts for 2% of sales right now, but management believes that offering a targeted food menu of specific items can lead to higher beverage sales. This could be a significant addition in capturing share of the all-important morning rush without adding unnecessary complexity for its "broistas." It launched eight new products, including four hot ones, in a pilot test of eight stores. Based on that initial success, it has expanded the program to 32 stores.
Paid advertising is an integral part of how the company is building its brand as it enters new markets. Since it isn't well known outside of its current markets, this is an important strategy to get its name out and create excitement about its products. But it's been equally successful in its more mature markets.
Finally, it's enhancing its rewards program with mobile ordering, and order-ahead is adding a substantial layer to sales. Rewards members accounted for 72% of sales in the first quarter, up five percentage points from last year, and there has been quicker adoption in new markets. Barone expects the rewards program to be a strong growth driver going forward.
Market sentiment or consumer sentiment?
Dutch Bros stock fell along with the rest of the market as investors were worried about a cooling economy if tariffs were raised. Management addressed how tariffs would affect its operations, and it was a confident take, since it estimated that only about 10% of its costs would be impacted. However, that doesn't address the pullback in general consumer spending.
With the new detente in tariffs between the U.S. and China, market sentiment is back up. Although Dutch Bros' costs that are affected, like coffee beans, don't come from China and could still be impacted by tariffs, consumer spending, which was the greater worry, may not be.
Great value on the coffee, but not the stock
Dutch Bros has a strong future ahead, but that comes at a price. Even at the lower price, it trades at a forward, one-year P/E ratio of 85, which is quite a premium. The market sees the tremendous opportunity here and is pricing it accordingly.
If you have a long time horizon, I don't think you'll be disappointed in owning this stock. However, because the valuation is so rich, the stock is susceptible to going lower on any bad news. If you can take that in stride and hold on through the likely bumps along the journey, Dutch Bros is an excellent stock to buy.
