Dutch Bros plans to roughly double its store footprint by 2029.
The stock’s valuation is extremely expensive, but much higher earnings could change that.
Dutch Bros needs to develop sustainable competitive advantages if it wants long-term success.
Dutch Bros (NYSE: BROS) started trading on the public markets about four years ago. And it has certainly been an extremely volatile investment. Shares have surged 62% just in the past 12 months (as of Sept. 29). But they also trade a stomach-churning 39% off their peak from February.
The business still catches the attention of growth-oriented investors looking to score huge returns. Can a $10,000 investment in this coffee stock turn into $50,000 by 2030?
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As an $8.6 billion business that isn't yet a national chain, many investors might not be familiar with Dutch Bros. The company operates in 19 states today, running what are mostly drive-thru-only locations.
Growth is the key theme. Dutch Bros is rapidly opening new stores. It plans to have 2,029 locations by 2029, roughly double the current footprint. If executed well, this can lead to greater sales and earnings over time.
Dutch Bros is an interesting growth story. However, I don't believe the stock will rise fivefold in five years, turning $10,000 into $50,000. For starters, the nosebleed price-to-earnings ratio of 145.7 it carries today indicates lofty expectations.
What's more, Dutch Bros' ultimate success is far from guaranteed. It probably doesn't have the same durable competitive strengths, namely a strong brand and cost advantages, that industry giant Starbucks possesses. Given the cutthroat nature of the retail and restaurant sectors, this poses a challenge for Dutch Bros to maintain long-term success, although it's not out of the question.
Investors can remain bullish on the stock, but they should temper their expectations. A 400% gain by 2030 is not in the cards.
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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.