Best Stock to Buy Right Now: Dutch Bros vs. Starbucks

People spend less on certain items when under economic stress. Presently, with inflation remaining stubbornly high, particularly for food items like eggs, consumers have been stretched. That's affected spending on certain items, a challenge currently confronting consumer discretionary stocks.

However, these pressures will ease at some point. It's incumbent on long-term investors to look past the current environment.

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Keeping this long-term thesis in mind, which coffee chain, Dutch Bros (NYSE: BROS) or Starbucks (NASDAQ: SBUX), offers the better investment potential?

Image source: Getty Images.

1. Dutch Bros

Dutch Bros, launched more than three decades ago, has nearly 1,000 drive-thru locations serving beverages at year-end, and planned to cross that threshold in February. Half of its menu consists of coffee items, but it also has other items like energy drinks, lemonade, and soda. It seeks to offer speed, quality, and service.

The company's culture includes community-based initiatives and a focus on retaining and attracting employees. Management credits its expansion on high-quality products, speed, and culture. It aims to open new locations at an annual mid-teens percentage rate.

Since Dutch Bros has been opening new restaurants, looking at revenue growth can prove misleading. Same-store sales (comps), which measure the change for locations open at least 15 months, provide a more meaningful measure of sales.

The company's comps show Dutch Bros' products have been resonating with consumers. Fourth-quarter comps increased 6.9%, with higher traffic contributing one-third of the growth. For the year, comps gained 5.3%, and management expects 2025 comps to increase 2% to 4%.

It's a profitable company, too. Diluted earnings per share under generally accepted accounting principles (GAAP) were $0.34 versus $0.03 a year ago.

Dutch Bros' success hasn't been lost on investors. The stock appreciated 166.8% over the last year through Feb. 28.

With locations primarily in the western part of the U.S., it has plenty of expansion opportunities. However, there's little room for error in its growth plans, with the stock trading at an eye-popping price-to-earnings (P/E) ratio of 233.

2. Starbucks

Starbucks has become a ubiquitous presence, selling its coffee and tea products around the world. It had over 40,500 locations at the end of calendar 2024.

However, this once-flying coffee chain has seen sales slump over the last several quarters. Globally, fiscal first-quarter comps dropped 4%, with traffic down six percentage points. North American comps fell 4% (8% decline in traffic), and restaurants in China saw comps decline 6% (2% fall in traffic). The quarter ended on Dec. 29.

Lower sales, combined with higher expenses, drove lower profits. The quarter's diluted earnings per share fell over 23% to $0.69.

Recognizing the challenges confronting Starbucks, the board of directors hired Brian Niccol as CEO last September. He had a lot of success leading Chipotle Mexican Grill.

Niccol launched a strategy aimed at improving results, called Back to Starbucks, which aims to take the company back to its roots by focusing on the store experience and offering unique, premium, high-quality coffee.

While management pointed to certain signs like a change in the mix sold, it's too early to tell if these steps will have a tangible effect on Starbucks' bottom line. Investors should keep an eye on comps and the operating margin to see if CEO Niccol's plans are working.

Investors have been optimistic, however. The shares gained more than 24% over the past year, easily besting the S&P 500's (SNPINDEX: ^GSPC) 15.9%. Starbucks' shares sell at a P/E ratio of 37, much higher than the 24 multiple from a year ago.

The decision

Given Starbucks' current challenges and relatively high valuation, I'd choose Dutch Bros as the better stock investment. True, its shares aren't inexpensive, but it's executing on its growth plans and growing profits.

For those feeling nervous about the stock's valuation, you can use dollar-cost averaging to smooth out your purchases, since you invest the same dollar amount at regular intervals.

Should you invest $1,000 in Dutch Bros right now?

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Dutch Bros and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.