Could Dutch Bros Potentially Transform into a Millionaire-Creating Investment Option?
Brewing up success in the coffee world, Starbucks has managed to create a handful of millionaires among its early investors with an astonishing 12,000% return on investment since its IPO. Sparking curiosity among investors, they ponder if another coffee stock champion is on the horizon.
Bearing the best chances to replicate Starbucks' triumph, there's no denying that Dutch Bros (BROS 26.12%) is leading the pack. Let's dive into the opportunities cooking up for the company.
The Secret Recipe
For restaurants to become colossal winners, they need a couple of key ingredients. These include a flourishing concept generating substantial free cash flow, coupled with a limited initial base capable of significant expansion.
Dutch Bros has been serving up a tasty concept with its performing stores. This can be seen in its swelling same-store sales figures, which have grown solidly over the past year. Over the last four quarters, they've climbed 5%, 10%, 4.1%, and 2.7%, respectively. Despite building new shops and slightly impacting existing shops, the company shows no signs of slowing down.
Adding more flavor to its sales figure, Dutch Bros is introducing mobile ordering into 90% of its locations and observing increased visit frequency by 5% among users. Food prospectively plays an even more significant role as it's testing an expanded menu in six test locations.
Moreover, its company-owned locations generate solid contribution margins, standing at a healthy 29.5% in the latest quarter. This, coupled with a limited store count of just over 900 stores in 18 states (with 645 being company-operated), leaves plenty of space for Dutch Bros to expand its presence.
By comparison, Starbucks reported over 21,000 locations globally at the end of its last quarter, making Dutches Bros' expansion ambitions look like a golden opportunity.
Dutch Bros' stores are designed smoothly and on the smaller side, focusing on drive-through service accessibility and customer satisfaction, ultimately helping it achieve profitability within two quarters of opening a new shop.
Millionaire-Maker in the Making?
Trading at a forward price-to-sales (P/S) multiple of 3.6 times, Dutch Bros shares might come with a slightly hefty price tag, but nothing compared to Starbucks' 2.7 times multiple. With an extensive expansion growth runway, it has the potential for substantial upside.
Dutch Bros stores generate comparable average unit volumes (AUVs) to Starbucks, boasting room for growth with the introduction of food items and online ordering. While it's unlikely to be a millionaire-maker stock in the next ten years without a substantial investing sum, the stock still shows potential for noteworthy gains.
In conclusion, Dutch Bros covers all the bases needed for growth. With an expanding store footprint, innovative menu offerings, and strong customer loyalty programs, the company makes an attractive investment for growth-oriented investors. However, investors should be cautious of its valuation and the risks associated with a smaller, rapidly expanding company.
- Investors who are intrigued by Starbucks' success might consider investing in Dutch Bros, given its similarities and promising growth potential.
- Dutch Bros' solid contribution margins, currently at 29.5%, indicate a financially sound business, a key component for potential investors.
- The depreciation of Starbucks' vast number of locations (over 21,000 globally) provides an opportunity for nimble competitors like Dutch Bros to expand and capture market share.
- Even with Dutch Bros shares trading at a slightly higher forward price-to-sales (P/S) multiple than Starbucks, its expansion growth runway and potential for substantial upside make it an appealing investment for those with a focus on growth.
