Investors may have some justification for trying to figure out the direction of Dutch Bros (BROS 4.82%) stock. After struggling to stay above $40 per share following its post-IPO swoon, it surged throughout 2024 and closed at a record high of more than $85 per share in February before a significant pullback.
Since achieving that record, the stock has lost almost one-third of its value. This decline likely leaves investors wondering where the stock will go in the next year, and trying to forecast that requires they take a closer look.
The state of Dutch Bros
Undoubtedly, most investors will like what they see with Dutch Bros stock since its 2021 IPO, as the Grants Pass, Oregon-based coffee chain is in the midst of a regional-to-national expansion.
The company claimed 471 shops when it filed for its IPO in the third quarter of 2021. Last month, it celebrated opening its 1,000th location in Orlando, Florida. Also, considering it opened 151 shops in 2024, one can safely assume the move to become a national chain will continue.
Admittedly, the coffee shop market is a competitive business. To succeed, it must compete with countless independents, private chains such as Dunkin’, and the dominant company in this business, Starbucks.
However, Dutch Bros has built a competitive advantage with its drinks and marketing. Its breve coffee drinks, made with espresso and half-and-half, are one of its more notable offerings. It also sells teas, lemonades, smoothies, and other beverages that bring customers through its drive-thrus, and an emphasis on quality helps foster brand identity. On the marketing front, many respect the company for its engagement with both the community and its employees, further reinforcing customer loyalty.
Analyzing the company’s financial metrics
Between those efforts and its considerable shop growth, it may surprise few that its $1.3 billion in revenue for 2024 grew 32% compared to year-ago levels. About 5% came from same-store sales growth, with its expansion of company-owned shops making up the rest of the growth.
Also, in its second year as a profitable public company, net income in 2024 was $35 million, a massive jump from the $1.7 million profit in 2023.
Such improvements should bode well for the coffee shop chain one year from now. In 2025, Dutch Bros expects to earn $1.565 billion in revenue. At the midpoint, that represents growth of 22%. That would mean a significant slowdown in revenue growth, an issue that tends to weigh on growth stocks when higher percentage increases become more difficult to maintain.
Additionally, valuation metrics imply that the stock price has moved ahead of fundamentals. One can dismiss the trailing P/E ratio of 175 amid its recent move to profitability. Still, a forward P/E ratio of 101 makes the stock undoubtedly expensive. Also, its price-to-sales (P/S) ratio of approximately 5 is significantly above the Starbucks sales multiple of around 3, confirming that investors will pay a premium for that more rapid growth.
Dutch Bros in one year
Given the state of Dutch Bros, it is more likely to underperform the market over the next year.
Admittedly, it appears its rapid shop growth is unlikely to stop anytime soon. That expansion increases the odds it will become an excellent long-term investment.
However, the near-term picture is far more uncertain. After a recent pullback, its forward P/E ratio is more than 100. That likely means its price has moved far ahead of its fundamentals. Unless its valuation falls significantly further, it is likely not a good time to add shares of this coffee stock.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
