Dutch Bros stock decline and long-term investment outlook, Digi Mart USA News: Artificial intelligence stocks were rising again as investors took in the results of the election, sending the S&P 500 higher. That good news did not extend across the board, however.
Coffee shop chain Dutch Bros (NYSE: BROS) released its third-quarter earnings on Wednesday, and its stock plummeted to a level 58% below its high.
The Motley Fool contributor argues that the stock could still be a strong long-term holding despite the sell-off. Dutch Bros has a casual, down-to-earth vibe with fun, exclusive beverages that set it apart from other chains.
Many of its drinks contain no coffee at all, and about 90% of what it sells is cold. The menu also includes energy drinks and many flavor combinations.
The company’s model includes a mostly drive-thru store portfolio, a robust digital membership program, and a new food menu. Dutch Bros operates in 28 states.
It opened 48 new shops in the quarter to reach 1,273, and it has 1,328 locations as of the report date.
In the third quarter, revenue increased 30% year over year, and same-shop sales increased 4.4%. The company has a franchise model but has switched to opening only company-owned stores.
Company-owned stores increased 5.5%, and net income rose from $27.3 million to $37.2 million.
The market reacted negatively to the report for several reasons. The results marked a slowdown from previous quarters, and the company lowered its full-year outlook across metrics.
The company said it will still meet its goal of opening 185 new stores this year, despite a previous bid for a 65-store chain falling through, and plans to accelerate openings to 250 stores next year.
Dutch Bros reaffirmed its expansion target of 2,029 stores by 2029 and says it plans to reach 7,000 stores over several years. The article notes that the company is entering new markets, growing its brand, and gaining customers, and that third-party research shows it outperforming industry standards on various guest experience metrics.
The company follows a deliberate real estate strategy that involves opening several stores in one area to build density. This strengthens its presence, but it can lead to lower same-store sales growth because new stores take share from existing ones.
Dutch Bros stock trades at a premium, which the article says is why it has been falling. At the current price, the stock trades at 28 times next year’s earnings.
The author writes that this is not a bargain, but considers it an attractive price for a company with substantial growth potential. The article acknowledges that the stock may be volatile over the next decade, which is typical of growth stocks, and suggests it may suit risk-tolerant investors who can ignore short-term noise and hold for many years.
The article is an opinion piece by a Motley Fool contributor and is not independently verified. It is not investment advice, and the article notes the author has a position in Dutch Bros.
