Why Dutch Bros Stock Soared 21% in August

Key Points

• Dutch Bros posted another phenomenal quarter, with strong growth and big profits.

• It has massive long-term expansion plans.

• Dutch Bros stock isn't cheap, but over many years, it should be well worth the price.

• 10 stocks we like better than Dutch Bros ›

Shares of coffee chain stock Dutch Bros (NYSE: BROS) soared 21% in August, according to data provided by S&P Global Market Intelligence. It reported another blowout earnings report, and the market is getting more excited about its prospects.

Image source: Dutch Bros.

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Down-to-earth coffee

Dutch Bros has been expanding fast across the country, picking up loyal customers and establishing itself as a real contender in coffee. Its stores have distinct branding and differentiated beverages, and it's focused on fun, friendly service and beverage innovation.

It has expanded carefully and deliberately, making smart decisions along the way. That includes bringing in a new CEO and management team to steer its expansion plan, pilot new menu options, and open new stores in formats that meet the demands of each location. It also only recently launched a mobile ordering service through its membership plan.

The results have been strong. Revenue increased 29% year over year in the second quarter, driven by both new stores and higher same-shop sales. Same-shop sales increased 6.1% year over year, and they were even higher for company-operated stores at 7.8%. Dutch Bros has also become quite profitable. Contribution margin widened 0.3 percentage points over last year to 31.1%, and net income increased from $31.2 million to $45.5 million.

Management raised its full-year guidance after the report.

A Dutch Bros on every corner?

The company opened 31 new stores in the second quarter, and it's planning on opening at least 160 stores this year. However, it will need to accelerate in the coming years to meet its goals. It recently said it's shooting for 2,029 stores by 2029, and it raised its long-term goal from 4,000 stores to 7,000.

If it can manage that while keeping same-shop growth steady, that's going to be some monster growth over many years, and it's easy to see why investors are crazy about this stock. It's up 130% over the past year, and it trades at a rich valuation of 80 times forward one-year earnings. However, looking out 10 years, it's likely to make investors very happy, even those who buy it at this price. A good strategy to buy excellent stocks that are trading at premium levels is dollar-cost averaging, which you might want to consider in this situation.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.