I'd Buy Dutch Bros Shares Without Any Hesitation Right Now. Here's the 1 Reason Why.
Key Points
Dutch Bros has had a lot of success over the years.
It has a large expansion opportunity.
The stock's valuation has become much cheaper.
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In that vein, listing reasons you should own an interest in a company seems like a smart approach. It's even better if one reason stands out.
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Here's the one reason I like Dutch Bros' (NYSE: BROS) stock.
Image source: Getty Images.
The owner and franchisor of a beverage chain (e.g., coffee and tea) has had tremendous success since its founding in 1992. Its focus on quality, speed, and service has clearly resonated with consumers.
Dutch Bros has consistently produced sales gains. In the third quarter, systemwide same-store sales (comps) grew 4.4%, the company's 14th straight quarter of growth. A higher average ticket (spending per visit) did most of the work, though; customer visits rose just 0.4%. Given that visits have now grown for nine straight quarters, I'm not worried that this is a long-term problem.
Plenty of shops left to build
Past success isn’t what makes Dutch Bros an exciting equity investment. It's the growth opportunity. At the start of the year, there were 1,136 locations in 25 states.
As of Sept. 30, Dutch Bros, which opened 137 locations this year, had 1,273 restaurants across 27 states. It plans to open at least 48 during the final quarter of the year. Management targets adding another 250 next year.
Investors didn't like the company's recent results, and the share price has dropped 42.6% this year, through Nov. 9.
However, that's created a better valuation for this growth company. Dutch Bros' price-to-earnings (P/E) ratio has fallen from 100 to 46 during this time. The current P/E is well below the lofty three-year median of 137.
Finding a growth opportunity at a reasonable valuation doesn't happen very often, so it's important to take advantage when it does.
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Lawrence Rothman, CFA 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.
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