Title: Is Dutch Bros Coffee Worth the Price? An Unexpected Perspective
Dutch Bros' shares have witnessed a remarkable 71% surge year-to-date, with most of the gains occurring post the company's Q3 earnings report on November 6th. Despite the stock trading at a staggering 187 times earnings, there's one chart that hints at immense potential returns even with the recent price surge.
A Growth Stock with Reasonable Valuation
The coffee chain is pumping most of its profits back into the business by continually expanding its presence across the U.S. Currently, Dutch Bros operates with a narrow 3.7% net profit margin, typical for smaller restaurant operators. This calls for viewing the stock beyond straightforward earnings and instead focusing on other key metrics.
Comparing Dutch Bros' and Starbucks' price-to-sales (P/S) ratios provides an intriguing perspective. Over their trading histories, Dutch Bros' stock has traded within the P/S multiples range Starbucks has seen for its 30-year tenure as a public company. This alignment signals that Dutch Bros might exhibit performance trends similar to Starbucks, which, with a $10,000 investment on Dec. 4, 1994, would have amassed a substantial $1.2 million today (excluding dividends).
Starbucks' sustained growth is mainly attributed to its revenue expansion, which has played a critical role in their impressive three-decade gains. The excitement surrounding Dutch Bros' 28% year-over-year revenue growth in Q3 echoes this sentiment, as the company boasted 950 stores in 18 states at the time. As it continues to expand, we could potentially see hundreds, if not thousands, of new locations in the U.S. over the next few decades.
Enrichment Data:- During its 3-year stint as a public company, Dutch Bros stock has maintained P/S ratios in line with Starbucks' 30-year history.
- Starbucks' P/S ratio has fluctuated over the years with an average of 2.76 in 2024, representing a 10.39% increase from 2023. The ratio was 3.08 in 2023, showing a slight decline from 2022[1]. As of January 2025, Starbucks' P/S ratio stands at approximately 3.07[2].
- Dutch Bros' P/S ratio is notably higher, at approximately 4.4, compared to Starbucks, which is trading at 2.9 times its sales[4]. This indicates that investors believe Dutch Bros has strong growth potential[4]. However, this also means the stock is more volatile to changes in sales performance, so investors should carefully assess the company's financial health, growth prospects, and competitive landscape before investing.
Sources:[1] Investopedia[2] MarketWatch[3] Yahoo Finance[4] Enrichment Data
Given Dutch Bros' continuous investment in expansion and its historically aligned P/S ratios with Starbucks, some investors might consider this as an opportunity for potential financial gains through investing in the company's stocks. Carefully analyzing the company's financial health, growth prospects, and competitive landscape would be essential before making such an investment decision, considering the stock's higher P/S ratio and increased volatility associated with it.
Moreover, Dutch Bros' remarkable year-to-date growth and Starbucks' substantial returns as a long-term investment highlight the potential financial gains that could materialize if Dutch Bros continues its revenue expansion and follows in Starbucks' footsteps over the next few decades.
