Why Dutch Bros Stock Took a Tumble This Week

Shares of Dutch Bros (NYSE: BROS) slumped 20% this week, according to data from S&P Global Market Intelligence . The upstart coffee stand chain that is undergoing rapid expansion across the country posted strong revenue growth but guided for a slowdown in future coffee shop openings in its second-quarter earnings report. As of the close on Aug. 8, 2024, the stock was down 19.2% since Friday's close.

Here's why Dutch Bros stock slipped again this week.

Solid sales growth, weakening new store growth

Dutch Bros is a coffee chain that operates drive-thru stands with unique caffeinated beverages like its famous Rebel energy drinks. In the second quarter, the company posted 30% revenue growth to $325 million, driven by 36 new shop openings and comparable sales growth -- growth from existing locations -- of 4.1% year over year.

Net income was only $22.2 million in the quarter. Consolidated profits look weak right now, but that is because of the company's reinvestment into new stores. Store-level profit margin was 30% in the period, which equates to around $100 million in quarterly profits.

So what was the issue with the report? I think the stock was likely down due to the company guiding for the low end of its 150 to 165 new shop openings for 2024. An expanding retail concept such as Dutch Bros is valued off of its growth expectations. With growth expected to slow, investors likely got spooked away from the stock.

The stock looks rock solid for the long term

Even though the stock is falling, the Dutch Bros business looks fine. Sure, units won't grow that quickly in 2024, but that isn't a big deal. It is posting strong comparable sales growth at existing restaurants, solid restaurant-level margins, and is self funding growth. With under 1,000 stores in the United States, there is still tons of room for Dutch Bros to expand in the coming years.

Right now, Dutch Bros' price-to-earnings ( P/E ) ratio looks high because of its weak consolidated profit margins. But that shouldn't keep people away from the stock. If you believe in the continuation of the Dutch Bros growth story, now is a perfect time to buy the dip and hold for the long term.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .