Dutch Bros (NYSE:BROS) stock is up 45% since coming public in mid-September.
It’s a coffee chain, the biggest threat Starbucks (NASDAQ:SBUX) has seen in years.
Dutch Bros is winning by going faster, broader, and younger. Dutch Bros outlets are mostly drive-thrus, which helped it keep growing during the pandemic, according to Placer.AI. Baristas whip up a variety of quirky drinks including a “not so secret” menu with names like the Bob Marley and the Candy Cane.
The target market is also different. The company has made no secret that it’s aiming at high school kids who might make the chain a habit.
If Starbucks is an elegant bar, Dutch Bros is an ice cream stand.
BROS Stock and Disrupting Starbucks
Travis Boersma co-founded Dutch Bros as a pushcart with his late brother Dane, who died of ALS in 2009. The brothers came from an Oregon dairy family. Private equity has grown the chain to 471 outlets in 11 states.
The S-1, filed in August, shows it copying many recent Starbucks innovations, including a mobile app and an emphasis on drive-thru. The S-1 features energy drinks, coffee and smoothies served quickly. Dutch Bros had sales of $228 million in the first six months of 2021, three-quarters from company-owned shops. It booked a small profit of nearly $6 million. For all of 2020 revenue was $327 million with about the same net income.
JAB is a good place to start talking about the competition. The German-based company has been rolling up breakfast for years, spinning-out pieces like Krispy Kreme (NASDAQ:DNUT) and Keurig Dr Pepper (NYSE:KDP). It kept full ownership of other chains, including Panera Bread, Einstein Bagels and Caribou Coffee.
Starbucks needs no introduction. Nor does Dunkin Donuts, now part of privately-held Inspire Brands, which also owns Arby’s and other chains.
Of all those groups, Dutch Bros most resembles Dunkin, which has 12,900 outlets. Dunkin now emphasizes coffee more than donuts and is often paired with Inspire’s Baskin Robbins ice cream chain.
How Much to Play?
Like many other IPOs, Dutch Bros stock started off hot. The market cap of $8.66 billion is 20 times sales. Dutch Bros is also only marginally profitable. Starbucks brought 15% of its revenue to the net income line last quarter.
The Bottom Line on BROS Stock
When you get a cup of coffee you blow on it, and let it cool, before taking your first sip.
TV analyst Jim Cramer thinks you need to do this with Dutch Bros. He likes it at $40. That’s midway between the IPO’s original target price of $23 and where it’s now trading.
Our Mark Hake wrote recently that Dutch Bros could rise to $51/share. It’s now at $53. Keep an eye on it, let it cool, then buy it for growth and be ready to sell once growth slows.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.