Looking for a great growth stock? Believe it or not, you don't have to look at artificial intelligence (AI) or even tech stocks to find one. In fact, you might be better off looking where other investors aren't, because that's where you can find great deals on lesser-known or non-hyped stocks.
Consider Dutch Bros (NYSE: BROS). This small coffee shop chain has big ambitions, and its stock could supercharge your portfolio. Here are three reasons to buy it right now.
1. People like its coffee
A great stock starts with a great business, and a great business starts with a great product. Anecdotal evidence supports the premise that customers like Dutch Bros coffee, both in beverage and culture. That's backed up by increasing revenue, same-store sales, and a successful expansion plan.
Dutch Bros operated 912 stores as of the end of the 2024 second quarter, close to double the amount it had when it went public three years ago. It's also now in 18 states, moving across the U.S. from its West Coast home base, and it already considers itself a "coast-to-coast" business.
The company opens at least 30 stores in a given quarter, which it has for the past 12 consecutive quarters, and it's planning to open around 150 stores this year. Originally it had given guidance of 150 to 165, but in its last update, management said it would come in at the lower end of the guidance.
The market didn't like that news, but the reasoning is that it's recalibrating some of its real estate models as it opens more stores and gains experience. This looks like a short-term blip in favor of longer-term advantages, and the stock's lower price looks like an opportunity to buy on the dip.
Management sees the potential for at least 4,000 stores over the next 10 to 15 years, providing years of growth opportunities.
2. It's making money
Dutch Bros is moving from an unprofitable growth stock to a profitable one, which reduces much of the risk when buying young growth stocks. Revenue increased 30% year over year in the second quarter, with a 4.1% increase in same-store sales, and that's trickling down to the bottom line.
The company reported full-year profits for the first time in 2023, and reported positive and increasing generally accepted accounting principles (GAAP) net income for the first two quarters of 2024. Wall Street is expecting that to continue in the third quarter and the full year.
Dutch Bros is still working on expanding margins and posting reliable profits, but it's on a great trajectory. It doesn't generate positive free cash flow because it has to invest in capital expenditures as it opens new stores at this early growth stage.
3. It's just now going digital
I was surprised to learn that up until very recently, Dutch Bros did not offer digital ordering. But it recently started rolling it out, and management expects it to be in all stores by the end of the year.
It already has a robust membership rewards program, which accounts for 67% of sales, and adding mobile ordering to the membership program is a no-brainer for higher engagement. It's also a way to get more customers to join the membership program and increase their loyalty to Dutch Bros.
In the pilot program, the company is already seeing traction from the mobile ordering program in its walk-up windows, which account for 10% of sales.
Mobile is a must for any food-order business today, but it very much complements Dutch Bros' differentiated model. It has a focus on drive-thrus, sending runners through lines to take and deliver orders even before drivers get to order windows. It also has an "escape lane" for drivers to exit once they receive their drinks. The shops with both drive-thrus and walk-up windows have bars for each one, with extra bars at high-volume locations, and more use of the walk-up window distributes worker capacity more efficiently.
Over time, this could be a tremendous sales generator for Dutch Bros as it attracts new customers to the mobile app, and it could also help its margins as it functions more efficiently. This is an exciting development for Dutch Bros and another reason to add this growth stock to your buy list.
Should you invest $1,000 in Dutch Bros right now?
Before you buy stock in Dutch Bros, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dutch Bros wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $826,069!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 7, 2024
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
3 Reasons to Buy Dutch Bros Stock Like There's No Tomorrow was originally published by The Motley Fool