Dutch Bros' Shares Soar Due to This Promising Expansion Factor. Is the Time for Purchasing the Stock Already Past?
Dutch Bros (BROS with a 3.33% boost) saw its stock soar skyward after dishing out better-than-anticipated Q3 figures and raising its projections. The company's share price is now up by a staggering 40% for the year, as per the current market trends.
The burning question on investors' minds is whether this upward swing will persist or if it's already too late to hop on the bandwagon. Let's delve deeper into the company's recent earnings and future prospects to help answer this query.
Another round of beating expectations and upping theante
Investors initially shrugged off Dutch Bros' impressive Q2 performance, as the firm announced plans to refine its real estate approach to ensure optimal site selection. However, the upswell of Q3 results brought cheers from investors following Dutch Bros' announcement of accelerated store openings during 2025 and 2026.
Dutch Bros reported a 28% surge in revenue for Q3, reaching $338.2 million, surpassing the $325.1 million consensus estimate from analysts. Adjusted earnings per share (EPS) also saw a 14% climb, topping the $0.12 analyst expectation, with a final figure of $0.16.
Same-store sales demonstrated a 2.7% increase, while company-operated same-store sales shot up by 4%. Transaction volume rose by 0.8% for company-run stores, with a more substantial 2.4% increase for stores directly owned by the company.
Revenue
Dutch Bros celebrated its Q3 by launching 38 new coffee shops, with 33 of them being company-owned. The firm currently operates 950 locations overall, with 645 of them being company-owned entities.
$1.190 billion to $1.205 billion
Dutch Bros posted a 20% rise in adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for Q3, settling at $63.8 million.
$1.215 billion to $1.230 billion
Moving on to the forecast, Dutch Bros once again upped its full-year projections. Revenue expectations now rest between $1.255 billion and $1.260 billion, with an adjusted EBITDA range of $215 million to $220 million. The same-store sales growth prediction for the year remains at 4.25%, with a slight increase of 1% to 2% expected for Q4.
$1.255 billion to $1.260 billion
Here's a tabulated overview of the company's revised forecasts:
| Previous Guidance | Revised Guidance || --- | --- || Revenue | $1.215 billion to $1.230 billion | $1.255 billion to $1.260 billion || Adjusted EBITDA | $200 million to $210 million | $215 million to $220 million || Same-store sales | low single digits | 4.25% |
Adjusted EBITDA
For the remainder of 2022, Dutch Bros is targeting 150 new stores, which falls within the lower end of its previous 150 to 165 projections. However, the company plans to introduce at least 160 stores in 2025 and boost its store openings even further in 2026.
$185 million to $195 million
The million-dollar question: Is the stock still a hot investment?
$200 million to $210 million
Dutch Bros is primarily synonymous with expansion, as its rosy Q3 results reflected the company's resolution to renew its growth momentum in both 2025 and 2026. Dutch Bros' stores harbor a compact footprint, with a focus on drive-thru transactions, which enables them to build at comparatively lesser costs. This cost-effectiveness, in turn, translates into an average unit volume of $2 million, underscoring Dutch Bros' robust revenue flow from this small-scale operation.
$215 million to $220 million
In addition to expansion, Dutch Bros is also exploring potential growth opportunities. The company recently initiated mobile ordering, which will soon be offered across 90% of its stores. Consumer interest in this new service is already strong, accounting for 7% of current transactions. The firm has also been testing an expanded food menu in six stores throughout Q3, with an aim to boost this offering to boost sales beyond the current 2% share.
From a valuation perspective, the stock currently trades at a price-to-sales ratio of 3.5, surpassing Starbucks' 2.7 ratio.
Same-store sales
While Starbucks' expansion phase may be in the rearview mirror, Dutch Bros, with only 950 stores in its arsenal, remains relatively untapped in terms of expansion potential. Dutch Bros stores are built at relatively modest costs and their expansion is fully covered by operating cash flow, suggesting that Dutch Bros has several expansion years ahead of it – potentially spanning a period of 10 to 15 years. Its ultimate expansion goal is to scale up to over 4,000 locations across these years.
low single digits
In my previous examination, I expressed a bullish sentiment towards Dutch Bros, even going so far as to include it in my list of stocks to snap up when it suffered a temporary price slump. Despite the stock's current price surge and valuation, I still believe in Dutch Bros' growth trajectory and its potential to reward long-term investors.
low single digits
Consequently, I believe it's not too late for investors to join the Dutch Bros bandwagon, even as its share value climbs higher.
4.25%
Investors are eager to know if Dutch Bros' upward momentum in the stock market will continue or if it's already past the ideal time for investment. The company's Q3 financial performance and future plans have shown promising growth, with a 28% revenue surge and accelerated store openings.
With Dutch Bros' stock currently trading at a higher price-to-sales ratio than Starbucks, some may question its investment potential. However, given Dutch Bros' relatively low expansion costs and vast expansion potential, it could offer attractive returns to long-term investors.
