Is It Too Late to Buy Dutch Bros Stock?

Investors naturally prefer to buy stocks when they're trading at a discount. As veteran investors can attest, though, sometimes you must pay a premium for quality that only becomes evident after a big rally.

It's a double-edged dynamic that's probably driving would-be shareholders of Dutch Bros (NYSE: BROS) crazy right now. The company's growth story is incredibly compelling, but the coffee drive-thru chain's stock is up more than 70% from the all-time low it reached in October. Does it mean it's too late to buy Dutch Bros stock?

From where I sit, the answer to that question is a solid "no."

What makes Dutch Bros different

On the off chance you aren't familiar with it, Dutch Bros is a chain of 876 drive-thru coffee stands. It's an obvious would-be rival to Starbucks , but it also competes with the likes of McDonald's and other chains that offer prepared premium beverages.

It's still unlike any other name in the same beverage business though. Whereas players like McDonald's and Starbucks aim to offer uniform (and somewhat impersonal) service from one locale to the next, each Dutch Bros store is unique by design. Its employees are encouraged to make things personal and neighborhood-oriented.

The fact that Dutch Bros is only a drive-thru also makes it different than most of its key rivals.

But is the world ready for a model that's exactly the opposite of what consumer-facing businesses have been building for the past 40 years?

That's just it -- it is.

The underlying shift in consumer preferences is largely rooted in the premise that whatever one generation wanted/had/did, the next generation prefers something else. Recently, that has been reflected in a shift away from formality and insincerity, and toward authenticity and personalization. The pandemic may have helped cement these new preferences into place. And the younger someone is, the more likely it is they'll want a company to be perceived as trustworthy and authentic before they'll purchase anything from it.

It's a paradigm shift that largely works against Starbucks, but plays right into the hand Dutch Bros is holding.

Reasons to expect more growth

One only has to look at Dutch Bros' growth to see as much. Total revenue for Q1 was up 39% year over year, lifted by same-store sales growth of 10%, and extending a well-established trend rooted in a combination of rising traffic to its locations and the construction of more drive-thrus. Dutch Bros is also becoming more profitable as it expands, and is expected to continue doing so.

Data source: StockAnalysis.com. Chart by author.

There are several reasons for would-be shareholders to believe it can -- and will -- do just that well into the foreseeable future.

An expansion of its physical footprint should drive much of this growth. Although it's a long-term plan, management hopes to one day be operating as many as 4,000 stores. That pales in comparison to Starbucks' 16,600 U.S. stores and McDonald's 14,300 domestic locations. But there's plenty of room for growth from an up-and-coming company built from the ground up to deliver precisely what today's consumers want.

At the same time, Dutch Bros is growing traffic at each of its stores by looking beyond coffee. Frozen fruity drinks, smoothies, iced teas, and a handful of easy-to-eat snacks are now on the menu.

Perhaps most compelling, however, is the company's leadership. CEO Christine Barone is a former Starbucks executive, and Dutch Bros recently added G.J. Hart and Todd Penegor to its board of directors. Hart helped familiar restaurant outfits like Red Robin, California Pizza Kitchen, and Texas Roadhouse become what they are today, while Hart was the CEO of Wendy's . There's certainly no lack of industry experience in the boardroom.

More reasons to buy Dutch Bros stock than not

Fine, but none of this answers the question: Is it too late to buy Dutch Bros stock following its 70% rebound from its low point?

No, it isn't.

Admittedly, a period of extreme bullishness in the recent past makes it tougher for a stock to book gains in the immediate future. But the bigger picture remains promising.

One big-picture item of interest is the company's established growth trajectory, and the context behind it. Dutch Bros is growing largely because it offers what consumers want, and how they want it. These new norms aren't apt to change for a long while. Another detail worth noting is that while the stock's been red-hot of late, it's still well down from its 2021 post-IPO peak. Volatility is the norm for this stock.

And that perhaps is the only real warning to interested investors -- if you're planning on buying Dutch Bros stock, brace for above-average volatility . Just keep in mind that this volatility is working for you at least as much as it's working against you.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy .