Should You Avoid Dutch Bros Stock, Even at a 52-Week Low?

If you look at some of the growth trends for Dutch Bros (NYSE: BROS), the drive-through coffee and beverage retailer, you might be intrigued.

In the second quarter, Dutch Bros posted 32% revenue growth, 5.8% systemwide same-store sales growth, and 8.3% company-owned same-store sales growth. It also raised its guidance for revenue, same-store sales, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

However, the stock price has fallen off a cliff since those second-quarter earnings were announced on Aug. 5. Before that, the stock was trading at about $65 per share; now it's at $39 per share and near a 52-week low. That's a 40% drop in less than two months.

Dutch Bros' stock is now down about 36% year to date and 25% over the past year.

Why the steep drive despite positive growth numbers? And is Dutch Bros stock a buy now at its 52-week low?

Image source: Getty Images.

Why did Dutch Bros sink to 52-week low?

One of the primary reasons that the stock price has tanked over the past two months is a deal to buy the real estate of 65 Salad and Go drive-through locations in Arizona, Nevada, Oklahoma, and Texas from the bankrupt company for a reported $105 million. The Salad and Go locations would be turned into Dutch Bros stores, expanding its footprint in the Southwest.

But the market did not like the deal as it meant increasing its capital expenditures for 2026 to $350 million to $370 million, up from the previous guidance of $270 million to $290 million. Investors likely saw this as too ambitious, putting a drain on cash flow, not just for the real estate acquisitions, but also for the construction costs to turn them into Dutch Bros shops.

But then, a few weeks later, it decided not to pursue the acquisitions. Normally, this might be a good thing, as investors who balked at the deal in the first place might be relieved that they are not moving ahead. But that was not the case as shares sank further because Dutch Bros was outbid by a rival, 7 Brew Coffee, which offered $123 million.

An overreaction?

There are other reasons that the stock price tanked. One of them was a drop in foot traffic growth from the previous quarter to 1.7%. Even though same-store sales were up, the increase was due to higher per-customer ticket prices.

There may also have been some investors who reacted negatively to projected lower Q3 same-store sales growth of 4% to 5%, even though Dutch Bros raised its full-year same-store growth guidance to 5% to 6%, up from 4% to 6%.

These items certainly don't warrant that huge pullback that we saw, especially since Dutch Bros decided not to overpay for the Salad and Go properties.

I think a big factor was its valuation. Dutch Bros P/E had increased to over 100 at the end of June. Much of this sell-off was driven by nervousness about the valuation. The P/E ratio is now back to 56, with a forward P/E of 35. That's lower, but still too high. But if Dutch Bros stock dips lower, it warrants a look, given its growth trends.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Dutch Bros. The Motley Fool has a disclosure policy.