Where Will Dutch Bros Stock Be in 5 Years?

The main rules of successful investing are pretty simple: Buy low, sell high. There are some complicated parts, though, like determining what prices are low and whether or not they're going to get higher.

Dutch Bros (NYSE: BROS) stock is trading at a low price right now. Let's see where it might be in five years and if it deserves a place in your portfolio.

More fun in your coffee

Dutch Bros does coffee differently than mammoth chain Starbucks and other coffee chains. Although it's been around almost as long as Starbucks, it was a small, regional chain for decades before it noticed a white-space opportunity to expand its business a few years ago. It perfected its model for replication, and it went public as a company with stores partially owned and partially franchised . Since it began its growth phase in the digital era, it's opening stores with new trends in mind, something Starbucks, with its existing 39,000 stores, is having a hard time with. Dutch Bros has 912 stores as of the end of the second quarter, up from about 500 when it went public in 2021.

However, Dutch Bros has only recently rolled out a mobile ordering program. It has expanded quickly, even without what would seem like an important program in today's day and age. That's a further testament to how much customers like its product. Its focus is less on digital and more on creating a culture of community and connection.

Dutch Bros has a completely new C-suite with experience across the retail and restaurant industries. It's refining the company's mission and operations and bringing out new innovations like the mobile program, and these should serve it well as it continues to expand. I'll be following up on how much value the digital ordering program adds to the overall opportunity here.

Cracking open its niche

You can see the results of its efforts in its financial performance. Growth has been reliably high, and it's scaling profitably. Those are two important pieces of a viable company with future growth potential.

Revenue increased 30% year over year in the second quarter. Most of the growth is coming from new stores, and comparable sales growth is something to keep an eye on. It's been back and forth between strong and weak, and 4.1% in the second quarter looks somewhere in the middle. There's pressure with inflation, and that makes this look more like a result of external headwinds than internal factors. Dutch Bros is expanding during a period of high uncertainty.

What makes it look more impressive is that it's becoming profitable and expanding margins despite inflation. The company-operated shop gross margin was 23.7% in the second quarter, which was up 0.1 percentage points from last year, and the company-operated shop contribution margin was 30.8%, which was up 0.5 percentage points from last year. Net income increased from $9.7 million to $22.2 million.

Since Dutch Bros is a small company in full growth mode, it's going to look a lot different in five years. It will have a lot more stores, for one thing. It's planning to open at least 150 stores this year, and if it continues with that pace, it should reach more than 1,600 stores. That's still small compared with its goal of 4,000 over the next 10 to 15 years, and new stores should continue adding high growth. If inflation calms down over the next few months and interest rates drop as expected, trends should reverse in its favor. That should lead to higher comparable sales growth and profitability over the next few years.

Buy low, sell high

Despite strong performance and massive opportunities, Dutch Bros stock is down 14% from its first-day closing price. At the current price, it trades at a price-to-sales ratio of 2 and a forward P/E ratio of 65.

Dutch Bros fell before the second-quarter report on analyst worries about the restaurant industry, and it fell even more after the report based on management's update that its new store count would come in on the lower end of full-year expectations.

Management framed that in the context of revamping its development plans with new insights from recently opened stores and changing real estate trends. That could be reasonable and even positive, but these kinds of changes could mean something deeper and alarm investors. It's likely to be a short-term issue, and the opening count is still within management's projected range. In other words, in light of Dutch Bros' other positive updates and opportunities, this doesn't look like something to sour on. It did send the price down, though, and make it more palatable to investors on the fence.

In five years' time, Dutch Bros stock should be much higher than it is today, and you'll regret not taking advantage of this opportunity to buy on the dip.

Jennifer Saibil 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 .