September's rocky start may evoke memories of 2008 and other challenging years when a September sell-off brought a historic bear market. This is not to say 2024 is 2008 all over again, but such concerns may motivate investors to either sell stocks or at least avoid buying for the next few weeks.
Such a concern may also prompt investors to seek stocks that can drive increased business and rapid growth in just about any circumstance. Given its growth trends, investors may want to consider Dutch Bros (NYSE: BROS) stock. Here's why.
Dutch Bros market position
Amid economic uncertainty, Dutch Bros finds itself in a unique and solid position. In one sense, coffee is a highly competitive business. Even if consumers choose not to brew coffee at home, they can go to Starbucks, competing chains such as Dunkin', or one of the numerous independent coffee houses dotting the U.S. consumer landscape.
Fortunately for Dutch Bros, it has found a way to stand out with its unique variety of beverages. It is likely best known for its Dutch Classics, which are drinks based on a combination of espresso and half-and-half. For those not wanting coffee, it also offers teas, smoothies, energy drinks, and other beverages.
Moreover, consumers like to go out for coffee and other beverages in just about any economic environment. This can also be true in a recession, as cash-strapped customers may go out for a Dutch Classic or a smoothie when a nice dinner might not fit a family budget.
Furthermore, Dutch Bros is in the midst of a rapid regional-to-national expansion, a trend that once drove stocks such as Home Depot, Walmart, or the most prominent coffee stock, Starbucks.
Dutch Bros operates over 900 locations across 18 states, and with a goal of reaching 4,000 shops, it has a long growth runway. This stands in contrast to Starbucks, whose more-than 16,700 locations in the U.S. alone nearly saturate its largest market.
Dutch Bros by the numbers
The company's financials highlight this advantage. In the second quarter of 2024, total revenue grew 30% from year-ago levels to $325 million. About four percentage points of that increase came from a rise in comparable-shop sales, with the remainder driven by the 158 locations added over the previous 12 months.
Additionally, it has earned a profit for the last few quarters. In Q2, net income attributable to Dutch Bros totaled $12 million, rising from $2.8 million in 2023's Q2.
Looking forward, the company forecasts just over $1.22 billion in revenue (at the midpoint) for 2024. If this prediction holds, it will amount to a 27% yearly increase. While that represents a modest reduction from the Q2 number, it is still a robust rate of growth. That so-called "slowdown" led to selling after its earnings announcement and gains of less than 10% for Dutch Bros stock over the last 12 months.
Nonetheless, this could be an excellent time to add shares. While the stock's price-to-earnings (P/E) ratio of 127 is far above Starbucks at 26, that may reflect its recent profitability rather than an elevated valuation. The price-to-sales (P/S) ratio of 2.3 might be a more representative measure, one that makes it less expensive than Starbucks at 2.9 times sales.
Consider Dutch Bros
Investors looking for a stock for an uncertain environment should consider Dutch Bros. The fact that it offers a low-cost indulgence should appeal to customers in nearly any economic environment. Also, more importantly, Dutch Bros is in the midst of a regional-to-national expansion, a move that once served some of the best-known retail businesses well. As the company expands to more areas, it can likely maintain a revenue growth rate well into the double digits for years to come.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot, Starbucks, and Walmart. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
