This Lesser-Known Stock Might Be a Better Buy Than Its Famous Rival

Coffee shop chain Starbucks (NASDAQ: SBUX) has changed the corner grocery coffee cup into an upscale, expensive experience. Today, there's a Starbucks on nearly every corner in some major U.S. cities. The company operates 40,990 stores globally, including more than 18,000 in the U.S. alone.

While the company is going through a major reinvention plan and could still offer value to investors, there's another coffee shop chain that might be a better buy. If you haven't heard of or experienced Dutch Bros (NYSE: BROS), here's what you need to know.

Image source: Dutch Bros.

All the elements of success

Dutch Bros is still a small outfit, with only 1,081 stores, a fraction of Starbucks' count. However, it's growing rapidly. It has doubled its portfolio since going public at the end of 2021, and it plans to double it again over the next four years.

It offers a completely different experience than Starbucks, focusing on fast, friendly customer service, and that's what sets it apart from other coffee shop chains. After all, even though they all have different takes on beverage innovation, their offerings are fairly similar in nature. Dutch Bros is hyper-focused on standardizing its model and making it transferable to all its new locations as it expands. Right now, it's based in Arizona and has a presence in 24 states, and it's planning to open at least 170 new stores this year.

Its store portfolio is mostly drive-thrus, although it has some with dining areas, and it's experimenting with walk-up windows. These are trends that fit today's busy customer, and the model lends itself to quick service. The company also recently introduced mobile ordering, an important component of a successful strategy in today's environment.

Dutch Bros has been demonstrating robust growth. Sales increased 25% year over year in the third quarter, and adjusted earnings per share (EPS) were up from $0.16 last year to $0.19 this year.

It's also starting to generate positive free cash flow as it scales while keeping capital expenditures fairly steady. That implies a viable long-term business with strong management.

Why it could be a better buy than Starbucks

It's easy to see why investors, especially growth investors, might be interested in taking a position in Dutch Bros instead of Starbucks. Starbucks has been struggling for a few years, and even if it gets back on track, there's no chance of its doubling store count anytime in the near future, if at all. Dutch Bros, on the other hand, has developed a new coffee shop model that works, and management sees the potential for 7,000 stores down the line. That's great for shareholders who can buy today and hold for years.

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