Peter Lynch earned his placement on the Mount Rushmore of mutual fund money managers. He achieved 29% annualized returns at the helm of Fidelity's Magellan in his 13-year tenure, seeing the initially obscure fund with $18 million in assets grow to $14 billion by the time he walked away in 1990 to write a couple of personal investing classics.
In his prime, Lynch loved taking his wife and three young daughters to the mall. It was the ultimate win-win outing. His family went shopping. Lynch was able to take the pulse of what emerging retail concepts were trending with youthful tastemakers.
It wasn't that easy to find stock market winners. This was simply the first step before Lynch and his team would dive into the deep research necessary to see if a good business could be a great investment. If Lynch had teenage daughters today, I believe that a stock on his radar would be Dutch Bros (BROS -1.79%).
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I'll drink to that
Dutch Bros is a fast-growing player in the otherwise sleepy world of beverage stocks. It's a fast-growing chain of small-box stores specializing in handcrafted coffees, energy drinks, and other specialty beverages. With rapid-fire drive-thru traffic driving average annual unit volumes north of $2 million, it's killing it in the high-margin premium beverage market. That's a lot of money for a 900-square-foot building with a walk-up window, a few outdoor tables, and the drive-thru lanes that account for roughly 90% of its business.
It went public five years ago, but it's not exactly an overnight success. The chain of 1,225 largely company-owned stores has delivered 19 consecutive years of positive comps. Rapid expansion and booming store-level popularity are driving strong growth.
Revenue rose 33% to $550.9 million in its latest quarter, fueled by new store openings and a 5.8% increase in comps. This isn't just another inflationary spike with a chain hiking prices. Transaction traffic is also up by a per-store average of 1.7% over the past year. It's not exactly a bottom-line growth story at this stage of its business cycle, but adjusted earnings outpaced the top-line increase.
NYSE: BROS
Key Data Points
There is still a lot of real estate for Dutch Bros to conquer. Its goal is to have 2,029 locations by the end of 2029. It recently revised its total addressable market to 7,000 stores.
It has a presence in just 25 states, and even then, the market isn't fully penetrated. I live in Florida, home to more than three dozen locations. I have to drive more than two hours from spend-happy Miami to find my nearest Dutch Bros, for now.
Back to Lynch, his young daughters would've loved Dutch Bros if it were a thing in the 1980s. The extensive menu of sweet, colorful beverages makes it a staple for high schoolers and their parents. It's a rare beverage concept that isn't just busy in the morning. It's pretty busy in the afternoon once schools let out for the day.
As a bonus, this booming concept is out of favor right now. The stock has fallen more than 20% over the past year, even after its "beat and raise" performance earlier this month. That's not just a dinner bell. It's an afternoon bell, too.
