Dutch Bros (NYSE: BROS) has been a difficult stock to own throughout its two-year history. After an IPO at $23 per share, it quickly spiked above $80 per share. Nonetheless, economic uncertainty and internal factors brought about a steady slide back to the IPO price.
However, the rapid revenue increases that helped inspire its early popularity have remained. As a result, it now operates more than 750 locations in 14 states. Moreover, with its heavily discounted share price and recent move to profitability, it may be time for investors to take another look at this emerging coffee stock.
The uncertainty surrounding Dutch Bros
Admittedly, some company actions could have given prospective investors pause. Dutch Bros announced in early August that CEO Joth Ricci will step down at the end of 2023. The company's president, Christine Barone, a former executive at Starbucks, will succeed Ricci.
The former CEO of Jones Soda guided the company through a massive expansion, taking the shop count from less than 400 in 2019 to its current size. The stock's IPO in September 2021 also took place during his tenure.
Additionally, the company announced in early September that it would float an additional $300 million in common stock. That dilution comes after its outstanding share count increased by 20% in the previous month.
Amid these developments, Dutch Bros stock trades close to all-time lows. Also, because it has only recently become profitable, its forward P/E is now at a skewed level of around 140.
Why now might be the time to buy
Still, without a significant history of profitability, a price-to-sales (P/S) ratio measurement is more appropriate and more favorable to Dutch Bros. At 1.5 times sales, it is about half the Starbucks P/S ratio of 3.
Moreover, revenue in the first half of 2023 rose 32% to $447 million versus the same period in 2022. Also, after declining 2% in the first quarter, same-shop sales rose 4% in the second quarter. Hence, it is not wholly dependent on opening shops to increase revenue.
Furthermore, thanks to its generally accepted accounting principles (GAAP) net income in Q2, the company reduced its loss to about $1 million in the first two quarters of the year. And even though the company guided to the lower range of $950 million to $1 billion for estimated revenue in 2023, analysts project approximately a revenue increase of at least 30%. Hence, with 150 new shops expected in 2023, the rapid growth will likely continue.
Additionally, investors should not ignore its competitive advantage, namely its differences with coffee giant Starbucks. Starbucks offers an Americanized version of the Italian coffee shop experience, which often involves consuming beverages and other items inside its stores.
In contrast, every Dutch Bros location is a drive-thru. Thus, its customers come for the drinks. It specializes in its Dutch Classics, which are drinks with espresso, half and half, and other ingredients. But it also offers teas, smoothies, lemonades, energy drinks, and other beverages.
Also, it seeks to give back to the communities it serves. This includes reducing its environmental impact, DEI initiatives, fundraisers, grants, and donations within its communities. Such efforts can have the effect of fostering customer and employee loyalty, which can be a critical draw in the current environment of rising prices for inputs and labor.
Making sense of Dutch Bros stock
Given the state of Dutch Bros and its current stock price, now might be time to consider the stock. Its more than 750 locations in 14 states show it is likely on a path to nationwide expansion. Over time, that can enrich investors, especially amid the company's recent profitability.
Indeed, the share issuances amid its positive net income and leadership change are causes for concern. But as long as it continues a rapid expansion pace and its revenue increases, its growth should eventually lead to a rising stock price.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
