Is Dutch Bros the Best Restaurant Stock to Buy Today?
Key Points
The fast-growing coffee chain reported high revenue and comps growth in the first quarter.
Its model of opening in a new region with high density and a media campaign is paying off.
Investors appear to be noticing Dutch Bros' success as the stock is priced to perfection.
Dutch Bros (NYSE: BROS) is slowly becoming one of the most important restaurant chains in the U.S. The company, which calls itself a coffee shop but tends more toward customized energy drinks, is growing rapidly and expanding across the country. Is it the best restaurant stock to buy today?
Protein, Rebel, Myst, and more
Dutch Bros has become more than a humble coffee seller. It's upped the coffee game for every competing chain by innovating with beverages and developing exclusive and decidedly non-coffee creations, like its Rebel Energy Series, protein coffee shakes, and recent Myst refresher drinks.
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Image source: Dutch Bros.
The model is more than that, though. The company aims for a friendly vibe, and it works predominantly as a drive-thru chain. All the pieces together make for a company that stands out in coffee, and the concept is catching on as it spreads across the U.S. Some first-quarter highlights:
- Sales increased 31% year over year.
- Comparable sales (comps) were up 8.3%.
- Net income increased from $22.5 million to $23.7 million.
- Dutch Bros opened 41 new stores.
The chain has stores in 25 states right now, and since it's not yet quite national, it's working to enhance brand awareness in new regions. It has a robust marketing program to get its name out there, and it often uses a cluster-opening strategy, with many stores in close proximity to create instant brand presence.
In Texas, comps were up nearly 20% year over year in the first quarter, which is extremely high for a restaurant chain. Management attributed the outperformance to market density and a strong media campaign, and it's working to replicate the formula in other locales.
Is Dutch Bros the best restaurant stock right now?
After the report, Dutch Bros' price target was raised by four Wall Street analysts. The consensus is a 42% increase over the next 12 to 18 months, with a high of 80%. But the stock actually fell 11% after the report. That might be because despite the phenomenal results, the market was looking for even better, and that's tied to its valuation -- it trades at a P/E ratio of 83, which is priced for perfection.
Whether it's the best restaurant stock to buy right now or not largely depends on what you're seeking as an investor. It certainly looks like the best option for growth investors; it's growing much faster than similar stores, and it has a huge opportunity ahead. The premium valuation suggests that the market expects great things.
If you're looking for value or you have a low risk tolerance, it's probably not the best stock for you.
Should you buy stock in Dutch Bros right now?
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Jennifer Saibil has positions in Dutch Bros. The Motley Fool has positions in and recommends Dutch Bros. The Motley Fool has a disclosure policy.
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