After disappointing performance following its initial public offering in 2021, Dutch Bros (BROS 3.48%) rewarded investors' patience with the stock rocketing higher. At the time of writing, the stock has climbed nearly 90% since 2023.
However, there's one green flag that says Dutch Bros is on its way to delivering monster returns for long-term investors.
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Gen Z loves Dutch Bros
Dutch Bros registration filing at the time of its IPO disclosed that only 23% of its customers were over the age of 36 and 67% were female. Brands that connect with Gen Z are in a great position to drive long-term growth, and Dutch Bros has tailored its strategy to win their loyalty.
It offers competitive pricing for its "handcrafted" beverages, which includes colorful names like Cotton Candy and Bubblegum Rebel, which appeal to a younger crowd. Its momentum with this young demographic could explain why Starbucks is having trouble growing sales. In the first quarter, posted systemwide same-store sales for Dutch Bros increased by 4.7% year over year, marking the ninth consecutive quarter of positive comp sales growth.
Starbucks has delivered six consecutive quarters of declining comp sales, with North America comps down 2% year over year in the most recent quarter. This represents an impressive market share gain for Dutch Bros, which doesn't have nearly the geographic diversity that Starbucks has. Dutch Bros has just over 1,000 shops open in 18 states but plans to have more than 2,000 by 2029.
Is the stock a buy right now?
It's another good sign for Dutch Bros that McDonald's venture into the specialty beverage market with CosMc's failed. Dutch Bros has tremendous brand power, excellent management, and brilliant marketing.
The stock is still worth buying. It was undervalued over a year ago, trading at a low price-to-sales multiple, which led to the rerating by investors. It is now trading at a more appropriate sales multiple for its growth potential. As it continues to grow, margins will likely expand and earnings per share will likely take off. This looks like a great long-term investment.
