What a brutal six months it’s been for Dutch Bros. The stock has dropped 23.5% and now trades at $38.70, rattling many shareholders. This may have investors wondering how to approach the situation.
Following the drawdown, is now a good time to buy BROS? Find out in our full research report, it’s free.
Why Does BROS Stock Spark Debate?
Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE: BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.
Two Positive Attributes:
1. New Restaurants Opening at Breakneck Speed
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
Dutch Bros sported 1,225 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 16.4% annual growth, among the fastest in the restaurant sector. This gives it a chance to become a large, scaled business over time.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales is a key performance indicator used to measure organic growth at restaurants open for at least a year.
Dutch Bros has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6%.
One Reason to Be Careful:
Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although Dutch Bros has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 2%, meaning management lost money while trying to expand the business.
Final Judgment
Dutch Bros has huge potential even though it has some open questions. With the recent decline, the stock trades at 32.5× forward P/E (or $38.70 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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