Dutch Bros (BROS) is, simply put, a coffee chain. But don't be fooled by its deceptively basic business — it is also a rapidly expanding growth stock with a current valuation of around $5 billion, suggests John Divine, senior financial markets editor at US News & World Report.
At present, Dutch Bros is a regional operator, with locations primarily in the West and Southwest. Founded in 1992 and headquartered in Grant Pass, Oregon, the company — a top speculative, growth-oriented pick for 2023 — currently has 641 locations in 14 states. But its ambitious expansion is changing those dynamics quickly.
In its Q3 2022 earnings report, the company announced that it had opened 103 new stores over the last year, which works out to location growth of 19.1% — a meteoric pace for any kind of retail operation, and nearly 7 times the 2.8% store count growth from industry leader Starbucks (SBUX) in the same period. Revenue, too, is growing like a weed, surging 53% year over year in the third quarter.
Importantly, it's not as if the business simply expects growth over the next year or two: BROS sees a footprint of 4,000 U.S. locations in its future, or more than 6 times the current number of stores.
It's fair to say that this caffeinated company is still in the very early innings of its corporate life cycle, with virtually every state east of Texas representing opportunity (Tennessee is the only state east of the Mississippi with Dutch Bros locations at the moment).
Of course, BROS stock probably isn't a top choice for value investors: The stock trades for about 86 times expected 2023 earnings of 35 cents per share. That said, investors should be willing to pay up for extremely high growth in a time where rising interest rates, inflation and recession fears have greatly diminished the prospects for many of yesteryear's best growth stocks.
And whereas many high-growth stocks tend to have trouble turning a profit at this point in their life cycle, Dutch Bros' expected 35 cents per share in earnings in 2023 is a 67% jump from the 21 cents per share analysts expect to see when 2022's full-year results finally roll in.
Qualitatively, Dutch Bros is also interesting for its differentiation with drive-thru-compatible stores, which tend to have a much smaller footprint than more traditional coffee shops where you might sit and attempt to write that screenplay you've been going on about.
BROS — which also stands out for its colorful, sweet drink options that have proven popular among Gen Z and millennial patrons and on social media — has adopted a strategy of heavily pursuing company-owned stores instead of franchised locations.
While this costs more upfront money, the company can reap the long-term rewards of higher overall profits and a much higher revenue base. Rapid expansion, margin improvement and long-term same-store sales growth make BROS a standout growth stock in 2023 and beyond.
