Dutch Bros Stock Is Served Up Hot and Fresh, but Not Cheap

Oregon-based coffee restaurant chain Dutch Bros (NYSE:BROS) started out in 1992, and grew its total number of locations to 471 by June 30 of this year. However, it’s only recently that the company finally had its initial public offering (IPO) of BROS stock.

A Dutch Bros coffee shop representing BROS Stock.
Source: Alexander Oganezov / Shutterstock.com

A major question on the investors’ minds revolves around whether there’s room for another drive-through coffee chain in the U.S. After all, Starbucks (NASDAQ:SBUX) is a much larger peer in that niche market.

Because of Starbucks’ clear front-runner status, it’s best to avoid talk of Dutch Bros as a “Starbucks killer.” Instead, we can assess whether Dutch Bros is sufficiently unique to compete – and whether the company’s in a sufficient fiscal position to do so.

With that in mind, I invite you to have a cup of joe and an appetizer of technical analysis. Then, we’ll serve up some company fundamentals – and hopefully, they won’t leave you with a bad taste in your mouth.

A Closer Look at BROS Stock

After previously providing a price range of $18 to $20, Dutch Bros announced that it would increase its IPO price to $23 per share in September.

With that, Dutch Bros expected to bring in $484 million from the stock offering, and become the seventh-largest Oregon-based company.

Amid heated investor anticipation, Dutch Bros went public on Sept. 14 at $23 per share. Stunningly, the share price shot up to $60 by Sept. 21.

What could have spurred this immediate moon shot? Perhaps it’s just a simple case of IPO mania in 2021.

Or maybe the investors understand that Dutch Bros is focused mainly on the western U.S. but could embark on a national rollout at some point.

Either way, BROS stock wasn’t destined to stay at $60 for very long. Through the second half of September and into early October, the share price drifted into the low $40’s.

A Story Stock

So, we have a pop-and-drop in the share price. That’s not what momentum-focused traders like to see.

However, I wouldn’t just give up on Dutch Bros just yet. There’s a story in the making here – hopefully, with a happy ending for the investors.

Growing the company to 471 locations wasn’t quick or easy. If you can believe it,  brothers Dane and Travis Boersma started Dutch Bros with a double-head espresso machine and a pushcart.

There’s some overlap with what Starbucks offers its customers, but the Boersma brothers made their business different enough to remain competitive.

First, Dutch Bros offers a wide variety of customizable, hand-crafted, high-quality hot and cold beverages

There’s also a unique drive-through experience with a hometown feel, along with a generally community-driven, people-first culture with Dutch Bros.

In other words, you don’t get that aloof, generic restaurant chain feeling with Dutch Bros, which you might get as a Starbucks customer sometimes.

Consistent Fiscal Growth

All of that warm, fuzzy, touchy-feely stuff might be nice to hear.

Let’s be honest, though: the investors also want to hear about the cold, hard fiscal facts. Show me the money!

Fair enough. A company prospectus offers some stats which ought to quell the concerns of hard-nosed investors:

  • 14 years of positive same-shop sales
  • 2.3 million Dutch rewards app members in first five months of launch
  • Revenues grew from $186 million in 2018, to $327.4 million in 2020, representing a compound annual growth rate (CAGR) of 33%
  • Adjusted EBITDA increased from $39.6 million in 2018, to $69.8 million in 2020
  • Adjusted EBITDA margin (non-GAAP) of 21.3% in 2020
  • System-wide average unit volume (AUV) grew approximately 3% during 2020 (despite the Covid-19 pandemic and September 2020’s West Coast wildfires) to approximately $1.7 million

Besides all of that, just the fact that Dutch Bros increased its shop count from 254 shops in seven states at the end of 2015, to 471 shops in 11 states as of June 30, 2021, should signal a coffee business in hyper-growth mode.

The Bottom Line

So, it Dutch Bros coffee-first, or people-first? Perhaps it’s some of both, and more.

Really, it’s the sense of community that will continue to drive Dutch Bros’ growth as a business. I just hope that the company doesn’t get too big for its own good and become a Starbucks clone.

As for BROS stock, the IPO hype seems to have caused the share price to overshoot, but it’s come down somewhat.

Hence, it should be fine to take a small position in the stock. It will be enjoyable to watch the story of Dutch Bros unfold – and to witness the share price, hopefully, head higher.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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