Dutch Bros‘ (NYSE: BROS) historical stock price chart looks like the drastically changing energy levels of its customer base — from peak caffeination to dreadful crash. Two years after the company’s initial public offering (IPO), shares cratered 31%. And in the past two years, they’ve soared 121% (as of Jan. 16). Now, this coffee chain stock trades 27% below its all-time high.
This business looks interesting for investors looking to get in on an expanding restaurant chain in the early innings of its growth story. There are both bull and bear arguments to take into consideration, but does Dutch Bros have what it takes to make you a millionaire at some point?
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Competition is a key component of the bear case. The restaurant sector broadly, and the retail coffee segment specifically, are hyper-competitive. Just think about the number of places you could grab a cup of coffee within a five-mile radius of where you live. Consumers have so many choices.
The industry is dominated by scaled operators, like Starbucks and Dunkin’ Donuts. Both companies have the brand recognition, broad retail footprint, cost advantages, and technology infrastructure that Dutch Bros will need to start developing if it wants to effectively compete in the years and decades ahead.
If a business is growing rapidly, it introduces execution risk. Dutch Bros has to manage its expansion effectively, maintaining its quality standards and avoiding overextending itself. Also, it wants to ensure it’s selecting the right locations for new stores that don’t cannibalize its existing shops. This can only be learned through experience but adds uncertainty.
The market has its eyes on this business, which is demonstrated by the valuation. Shares trade at a price-to-earnings ratio (P/E) of 125 right now, which means the investment community has very high expectations and there might be no margin of safety. Should Dutch Bros report growth metrics in any given quarter that come up short of Wall Street estimates, the stock could tank quickly.
Bulls have a more optimistic view regarding valuation. Because Dutch Bros is growing rapidly, the current valuation might be less of a factor, relative to the long-term potential. The company’s growth opportunity is easily the most compelling aspect of the bull case.
Dutch Bros had 1,081 stores at the end of the third quarter, more than double the 503 stores exactly four years before. Management’s stated target is to have 2,029 shops open in 2029. They estimate the total addressable market (TAM) in the U.S. is 7,000 locations, which is up from a prior expectation of 4,000.
It makes sense why the leadership team is pushing hard on the gas pedal. Focus on the unit economics here. Same-stores sales are projected to have grown 5% in 2025. That’s an encouraging trend at a time when many restaurants and retailers are feeling the pinch from softer consumer spending and foot traffic.
The shops are lucrative. The target average build-out cost is $1.25 million, with target average annual sales of $1.8 million in year two of operation. Management is aiming for a cash-on-cash return of 45%. It helps that these stores have a smaller physical footprint.
Dutch Bros is doing a good job driving sales after the morning daypart, with almost three-quarters of revenue coming after 10 a.m. This is a differentiator versus rivals, which get half of their sales before 10 a.m.
Dutch Bros’ shares trade at an expensive valuation. However, I fully understand the thinking of investors who want to add a potential home-run opportunity to their portfolios. Dutch Bros deserves a closer look from those willing to take on more risk.
However, an investor shouldn’t be looking for a single investment that could be their ticket to becoming a millionaire. Building a diversified portfolio of high-quality stocks is the proven way to build wealth over the long term.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
