The past six months have been a windfall for Dutch Bros’s shareholders. The company’s stock price has jumped 90.5%, hitting $60.24 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy BROS? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does BROS Stock Spark Debate?
Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE:BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.
Two Positive Attributes:
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Dutch Bros’s demand has been spectacular for a restaurant chain over the last two years. On average, the company has increased its same-store sales by an impressive 4.3% per year.
2. Operating Margin Rising, Profits Up
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Dutch Bros’s operating margin rose by 3.5 percentage points over the last year, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 8.3%.
One Reason to be Careful:
Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
While Dutch Bros posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, Dutch Bros’s capital-intensive business model and large investments in new physical locations have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2.8%, meaning it lit $2.84 of cash on fire for every $100 in revenue.
Final Judgment
Dutch Bros has huge potential even though it has some open questions, and after the recent rally, the stock trades at 118.4× forward price-to-earnings (or $60.24 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More Than Dutch Bros
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
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