Why Dutch Bros Stock Skyrocketed 62% Last Month

Source The Motley Fool

Shares of drive-thru coffee chain Dutch Bros (NYSE: BROS) skyrocketed 62.2% during November, according to data provided by S&P Global Market Intelligence. It's not uncommon to see a stock jump after a positive financial report, and the company did report financial results for the third quarter of 2024 on Nov. 6. But a jump of this magnitude is unusual and signals that something extra special happened.

Throughout 2024, an increasing number of investors have been betting against Dutch Bros stock -- this is known as short selling. As the chart shows, short interest has been increasing and hit an all-time in late September. And it was still elevated going into November.

BROS Short Interest Chart

BROS Short Interest data by YCharts

At the risk of oversimplifying things, it seems investors were generally becoming more pessimistic about Dutch Bros going into the Q3 report. But the company shocked investors by turning in a strong report that showed 28% year-over-year revenue growth and net income of nearly $22 million.

When investors have low expectations, and the company turns in a good report, an explosive stock price can result. And it seems that's what happened with Dutch Bros stock in November.

Serving up some new growth ideas

Dutch Bros stock has investors' attention because of its strong growth. This growth has largely come from opening new locations since it went public. But with its Q3 report, management brought attention to the fact that it's testing an expansion of its menu. Whereas food items make up less than 2% of sales today, it hopes that food can make up a much larger percentage in the future.

It gives Dutch Bros another growth lever that investors hadn't counted on, contributing to the strong gains with the stock.

With its Q3 report, professional analysts on Wall Street had to adjust their expectations for Dutch Bros stock. Many analysts responded by increasing their price targets. Perhaps the most substantial increase came from Piper Sandler analyst Brian Mullan. According to The Fly, Mullan has a new price target of $51 per share for Dutch Bros, compared with a price target of just $36 before. And an increase such as this gets investors excited.

What to watch now

Regardless of whether food will eventually drive growth, the main growth lever for Dutch Bros remains promising. Management is accelerating new openings headed into 2025 and is already filling out its pipeline for 2026. Assuming these new locations have similar economics to existing locations, this could be a powerful driver of future gains for Dutch Bros stock.

Shareholders will want to watch profit margins as Dutch Bros expands -- the coffee space is competitive, and strong competition can drive profits lower. But if the company keeps growing at this pace while margins hold strong, it could signal strong long-term potential for this business.

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*Stock Advisor returns as of December 2, 2024

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

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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