While big tech stocks, especially those in AI, are in the spotlight, investors may seek lesser-known opportunities. One such option is Dutch Bros (BROS +0.92%). This $5.4 billion mid-cap coffee company has potential.
Currently, Dutch Bros is trading 54% below its peak but has seen a 40% rise over the past year. Can it outperform the S&P 500 by 2030? Let’s explore.
Dutch Bros’ Growth Potential
Dutch Bros operates mainly drive-through coffee shops in the U.S. It had 912 locations as of June, a 21% increase year-over-year. The goal is to expand to 4,000 stores in the next 10 to 15 years, a 339% increase from today.
If successful, their revenue will likely grow significantly, aided by a same-store sales increase of 4.1% in the last quarter, outperforming larger competitors like Starbucks.
Additionally, the company is already profitable, with net income more than doubling to over $22 million in the second quarter, suggesting higher margins as they grow.
High Expectations
Despite the appealing aspects of Dutch Bros, I’m skeptical about its ability to beat the S&P 500 by the end of the decade due to intense industry competition. New coffee shops can easily emerge, and customers can switch without any cost.
Without a strong competitive edge or “economic moat,” Dutch Bros struggles against giants like Starbucks, which has nearly 40,000 stores and established brand presence. Dutch Bros, with just over 900 locations, has a poor return on invested capital of 2.7%, compared to Starbucks’ impressive 57.1%.
Moreover, Dutch Bros shares have a high price-to-earnings ratio of 139.4, indicating lofty future expectations that make me wary. Overall, I believe the case against investing in Dutch Bros is stronger, and I don’t see it outperforming the S&P 500 over the next six years.
`
