4 reasons to buy Dutch Bros stock over Starbucks

Key Points

• Dutch Bros is a drive-thru coffee and beverage chain generating 33.2% YoY revenue growth with an asset-light franchise model compared to 11% YoY growth by behemoth Starbucks.
• Dutch Bros stores average 950 square feet per location and generate over $2,000 per square foot annually.
• Dutch Bros has more room to grow with just over 700 locations in 15 states as it plans to open over 4,000 locations within the next 15 years, helmed by its new CEO, who was the former CEO of True Food Kitchen and a Senior Vice President at Starbucks.

Drive-thru coffee and beverage operator Dutch Bros Inc. NASDAQ: BROS stock has more upside than the incumbent behemoth Starbucks Co. NASDAQ: SBUX on a percentage basis. Its newly minted CEO, Christine Barone, starts on Jan. 1, 2024. She is the former CEO of True Food Kitchen and was the Senior Vice President of Food, Licensed Stores and Evenings at Starbucks.

Same-store sales for this member of the consumer discretionary sector have been on an upward trajectory, reaching 4% YoY in its latest quarter. Investors who are looking for upside may be interested in a smaller company earlier in its growth stage. Here are four reasons that Dutch Bros. stock may have more upside than Starbucks. 

1) Dutch Bros. is an asset-light business.

Dutch Bros operates both a company-owned and franchise model. The company has a franchise model, with nearly half its stores company-owned and company-operated. Over half the locations are run by operating partners who are employees who have been with the company for more than four years. Operating partners can run four to seven stores and receive six-figure salaries, incentives, 401ks, and health and dental benefits. In its Q3 2023 report, company-owned stores grew margins 410 bps YoY to 24.1%.

2) Drinks are more affordable.

While coffee and expresso products are its core drinks, Dutch Bros also sells a wide myriad of beverages, from Rebel energy drinks to seasonal flavors like Midnight Rebel w/Shine to Merry Mischief Rebel and Candy Cane Cold Brew.

Shine is a unique swirling luster that can be added to any iced drink. Drinks are also much cheaper than Starbucks, which attracts budget-conscious customers with drink prices starting at $3.00 for a small beverage and up to $4.50 for large-sized beverages. Get AI-powered insights on MarketBeat.

3) Streamlined operations with faster drive-thru service.

Dutch Bros. is a drive-thru coffee and beverage chain. This calls for less wasted retail floor space and cheaper rents. Many locations have walk-up windows and outdoor seating. Its locations have an average size of just 950 square feet, the size of a studio apartment, with drive-thru lanes on both sides of the building. The average location generates over $2,000 per squeeze feet in annual revenues.

4) Growth is stronger than Starbucks.

Starbucks is the 8000lb gorilla, but growth rates are starting to plateau at 11%, while Dutch Bros. saw 33.2% revenue growth. Of course, it's much harder to grow revenues on a percentage basis when you're generating $9.37 billion quarterly revenues compared to $264.5 million that Dutch Bros generated in Q3 2023. But at that rate, Dutch Bros. has more room to grow. Check out the sector heatmap on MarketBeat.

The company has over 770 locations in the United States, covering just 15 states and over 400 cities. Dutch Bro plans to open 150 new shops, of which 130 are company-owned, in 2023 and plans to open over 4,000 locations within the next 10 to 15 years. Its Q3 2023 revenues rose 33.2% YoY to $264.5 million, beating analyst expectations of $258.33 million. It earned 14 cents per share, beating consensus analyst estimates by 8 cents. It expects full-year revenues between $950 million and $1 billion. Risk-tolerant investors looking for growth may consider Dutch Bros. as it’s still early in its growth phase.

Analyst actions

On Nov. 20, 2023, JP Morgan upgraded shares of Dutch Bros. to Overweight, raising its target price to $35 from $30. On Dec. 21, 2023, Wedbush added Dutch Bros to his Best Ideas List.

Dutch Bros analyst ratings and price targets are at MarketBeat. Dutch Bros peers and competitor stocks can be found with the MarketBeat stock screener. Dutch Bros. has a 15.5% short interest.

 Daily Golden Cross attempt

The daily candlestick chart on BROS illustrates a potential Golden Cross pattern forming with a rising 50-period moving average at $27.89, attempting to cross up through the flat 200-period moving average at $28.54. The 200-day moving average has been a significant support level, as evidenced by the bounce off of it on Dec. 20, 2023. The daily market structure low (MSL) breakout triggered the $26.07 break, leading to the rising 50-period moving average. The daily relative strength index (RSI) is stalled at the 64 bands. Pullback support levels are at $29.90, $27.06, $26.07 and $24.64.