Dutch Bros. (BROS) has quickly become one of our favorite cookie-cutter stories in the market; the stock is wild and wooly and probably needs a little more seasoning, but the potential is there, suggests Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.
The company operates 538 small-form (new locations are averaging around 900 square feet) beverage locations, with cold drinks the most popular (especially its energy drink offering) but there’s something for everyone.
Having started as a family business, the culture and customer service is supposedly top notch; the firm has even leant heavily on opening company-operated stores (instead of franchising) of late, having those that grew up in the corporate environment take over new locations.
Whatever it is, Dutch Bros. has been a hit, and the store economics mean the firm is going to get much, much bigger over time — on average, a new location recoups 80% of its opening costs in the first year.
The company is recycling that cash flow into expanding its footprint; all told, the top brass believes it can have up to 4,000 locations in the U.S., and it’s been expanding the store base at a rapid rate (21% last year) to go along with what should be mid-single-digit same-store sales growth.
Best of all, business right now is actually outpacing those figures: In early January, Dutch offered a Q4 update, saying that same-store sales rose 10% or so and new openings beat expectations; for 2022, the firm sees 125 new stores opening (up from an estimate of 112), which would represent 23% growth!
While we’ve seen such rapid store growth before, it usually pairs with losses, but Dutch’s bottom line is growing nicely and Wall Street expects that to continue. To be fair, the valuation is extreme, but so is the growth potential.
Technically, BROS came public in September, rallied for a few weeks and then got caught up in the market’s implosion — from top to bottom, shares fell a bit more than 50%, which isn’t good but wasn’t abnormal given the market and the fact this is a new issue.
Encouragingly, though, BROS is acting like a tennis ball of late; after a dip below support in the mid 40s, shares have popped higher on excellent volume. As we noted above, the volatility is extreme, but if you’re game, you could go after a small position here or on dips, with a loose stop.