A Once-in-a-Decade Opportunity: 1 Super Growth Stock Down 58% to Buy and Hold for a Decade

Artificial intelligence (AI) stocks were rising again as investors take in the results of the election, sending the S&P 500 higher.

But that good news didn't extend across the board. Coffee shop chain Dutch Bros (NYSE: BROS) released its third-quarter earnings on Wednesday, and its stock plummeted. It's now a crushing 58% off its high.

However, things could change rapidly for this growth stock, and if you buy it today and hold it for a decade, I have a high conviction that you'll be well-rewarded. Here's why.

Making coffee fun again

Dutch Bros has a casual, down-to-earth vibe with fun, exclusive beverages that differentiate it from other chains. In fact, many of its drinks don't have coffee at all. About 90% of what it sells is cold, and it offers energy drinks and many flavor combinations.

The other parts of the model include a mostly drive-thru store portfolio, a robust digital membership program, and a new food menu.

Image source: Dutch Bros.

It's attracting loyal fans wherever it has already opened, which is in 28 states. It opened 48 new shops in the quarter to reach 1,273, and it has 1328 locations as of today.

In Q3, revenue increased 30% year over year, and same-shop sales increased 4.4%. The company has a franchise model, but it has switched to opening only company-owned stores. It has rigorous standardization across its fleet, and company-owned stores increased 5.5%. Net income increased from $27.3 million to $37.2 million.

There were several reasons why the market didn't like the report. First, it's a slowdown from previous quarters. And worse, the company lowered its full-year outlook across metrics. Here are the prior and new numbers for the outlook:

Data source: Dutch Bros quarterly reports.

A major expansion opportunity

The company also provided an update that it will meet its goal of opening 185 new stores this year despite a previous bid for a 65-store chain falling through, and it plans to accelerate openings to 250 stores next year.

That wasn't a good enough update to prevent the stock from plunging, but Dutch Bros has serious expansion plans. It expects to have 2,029 stores by 2029, and it reaffirmed that target. It plans to have 7,000 stores over several years, and in a decade from now, that goal is likely to be even bigger.

New stores are leading to scale as the company enters new markets, grows its brand, and gains new customers. Third-party research shows it outperforming industry standards across various guest experience metrics, and it gets the highest customer service ratings.

Dutch Bros has a deliberate real estate strategy, part of which involves opening several stores in one area to build density. That bolsters its presence and brand, and having several stores within customers' reach helps it become part of their everyday routine. That can, however, lead to lower same-store sales growth, since new stores take share from old stores.

Priced for perfection

Dutch Bros stock trades at a premium, which is why it's been falling. When it's priced for perfection, it can't handle any missteps even if its results were strong. At the current price, Dutch Bros stock trades at 28 times next year's earnings, which I still wouldn't call a bargain.

However, it's an attractive price for a stock with as much potential as Dutch Bros. There could be lots of volatility over the next decade, which is the nature of growth stocks. This looks like a great entry point for risk-tolerant investors who can ignore the noise and hold for many years.

Jennifer Saibil has positions in Dutch Bros. The Motley Fool has positions in and recommends Dutch Bros. The Motley Fool has a disclosure policy.