This article is proudly sponsored by Lake Region State College!

About Dutch Bros

One of my good friends drives the city bus.

When I’m fortunate enough to be a passenger on one of his routes, we typically engage in lively discussions and even debates about the small stuff and the big stuff.

You know, much of anything between our respective opinions regarding jazz and our stances on political matters.

Jazz being the important stuff, obviously.

We also talk about coffee.

I for one am most certainly not into coffee or coffee culture, however, my bus driving compadre is really, really into Dutch Bros.

Not Starbucks, Dutch Bros.

One day, he was apparently at one of their locations picking up some coffee for someone else when one of the employees at the shop continuously urged him to try it for himself.

After a few declines, he finally gave in and now he’s a borderline Dutch Bros fanatic.

Somebody please get whoever encouraged him to just give it a shot (coffee humor) a raise.

Caramel this, mocha that, it’s really all news to me.

However, when one of your friends tells you that Starbucks isn’t all that but for more reasons than one, one of its smaller competitors, Oregon-based Dutch Bros is all the rave, you do what any normal person would do and consider writing a stock analysis article on the company before even thinking about going to one of its locations.

That’s what you would do, right?

Shamelessly acknowledging that we are a little weird, let’s shed some light on Dutch Bros and its business model and whether or not we view this company as being recession resistant or not, just before getting into the company’s core financials.

Firstly, Dutch Bros is just like Starbucks in that it is mainly focused on selling coffee, however, the company in question is, from our perspective, much more intent on snatching up the younger consumer crowd, given its resoundingly laid back vibe and overall younger workforce as the faces of the company.

Additionally, the company apparently prides itself on offering highly customizable drinks, which we think is another way in which it appeals to younger audiences.

While we certainly think Starbucks caters largely to the younger crowd as well (if not even more so than Dutch Bros given its sharp marketing campaigns), a little competition never hurts and who knows, maybe Dutch Bros might be the real deal.

All of this being said, it is our initial, experience-based opinion that Starbucks is well insulated (but not completely, by any means, of course) from recession-rooted pressures given its market share, excellent rewards programs, diversified in-store product offerings and sheer brand recognition and clout among the masses.

When it comes to Dutch Bros, we are comfortable in admitting that we just don’t know. 

Particularly, we don’t really know all that much about the company and what it does in order to not only initially acquire but actually retain its core customers for the long-term, or really, if it does anything at all outside of just offering a great product.

At least, according to the aforementioned, now even more famous bus operator.

Recession or not, it has been our experience that people still turn to Starbucks (after all, coffee can be addictive) and whether or not that has been the case with Dutch Bros, we don’t know yet.

Let’s take some concrete steps in determining whether or not Dutch Bros stock (NYSE: BROS) should be considered as a long-term investment for your stock portfolio.

Dutch Bros’ stock financials

With a current share price of $30.24, a market capitalization of $4.95 billion, no annually distributed dividend offered to its shareholder base and not a price-to-earnings (P/E) ratio in sight, there isn’t much to see or analyze here, as this company likely doesn’t have a P/E or an annually distributed dividend due to its current phase of growth, as much (if not all) of its earnings are probably being shoved right back into the business and store unit growth across the United States and on the dividend side of things, this company doesn’t need a quarterly cash drain quiet yet, but will likely offer a steady dividend (Starbucks does, at least, after scaling over the years) upon maturing, which will undoubtedly take some time.

As it relates to the general state of the company’s balance sheet, Dutch Bros’ executives are in charge of almost $1.2 billion in terms of total assets as well as around $1.1 billion in terms of total liabilities.

While this current picture isn’t all that grim given that it operates in a real-estate heavy (i.e., long-term, cost heavy) industry, we do suspect that this company’s aggregate amount of debt and total liabilities overall is going to continue rising, eventually well above that of its total assets if it plays too fast and loose, given that with great growth in a relatively short amount of time typically comes a significant amount of tacked on debt that must be responsibly managed.

Heck, this has become and frankly been the case with even a mature, successful food franchise such as Domino’s Pizza.

The difference is Domino’s, being the established, global company it is, can more than likely take care of its total liabilities over time given its market share, scale, margin leverage and many other moats it has established and solidified.

Dutch Bros doesn’t currently have any of these luxuries, at least from where we stand.

While this doesn’t completely deter us from continuing our investigation into Dutch Bros, it is something we and the entire investment community should consider moving forward.

With respect to the company’s income statement, Dutch Bros’ total annual revenues totaled $238 million in 2019, $327 million the following year, $498 million the next, leading all the way up to its latest reported figure of $739 million, as reported in 2022.

Simply put, we didn’t anticipate this company’s annual revenues to rise each year, especially throughout the brunt of COVID-19 and the prevailing supply chain-related issues, however, it sort of makes sense (i.e., more stores leading to more sales) and we enjoy the fact that Dutch Bros’ executive team opted to stay on the offensive instead of retreating and playing it “safe.”

These recent revenue figures heavily imply that this company was focused on opening stores in new territories, which we like to see.

Calculated yet aggressive scaling.

Onto the company’s cash flow statement, Dutch Bros’ total cash from operations since 2019 have remained consistent and positive, to which we also tip our hats, although the figures are relatively low (generally around $50 million each year) and it has incurred some net income losses in recent years, however, as of right now this company can afford it and it has been hewing these losses down between 2021 and 2022.

This hardly concerns us since it just naturally comes with widespread, scaled growth, especially for a capital intensive company such as Dutch Bros.

Dutch Bros’ stock fundamentals

According to the figures listed on TD Ameritrade’s platform, Dutch Bros’ trailing twelve month (TTM) net profit margin isn’t all that exciting (at all) yet, but as this company continues to scale and penetrate more markets, we sure hope (and think it will) it’ll rise in this sphere.

Specifically, the company’s TTM net profit margin is pegged at -1.58% to the industry’s average of 10.37% and frankly, so much of this is likely Starbucks.

When it comes to coffee, Starbucks is the top dog, obviously.

Over time, Starbucks has been able to handsomely beef up its TTM net profit margin, likely well above that of the competition’s averages, however, as Dutch Bros continues successfully expanding and establishing a presence in regions that are underserved in the coffee arena, we think it’ll certainly take some time, but it’ll eventually result in a far more competitive TTM net profit margin between now and, say, the remainder of the current decade.

Lastly, with respect to its TTM returns on both assets and investments, Dutch Bros’ sing a nearly identical tune to that of its TTM net profit margin and its stance against the industry’s averages, as with its somewhat rapid expansion it takes some time for companies to attain competitive returns on its assets and investment(s), which we take to largely be the case with Dutch Bros.

To us, this is more good than bad on the net, but, as always, time will tell.

Should you buy Dutch Bros stock?

First, if we’re being completely frank with one another, in the case of coffee, we would much rather have the industry’s unequivocal leader (Starbucks) in our portfolio as opposed to a rookie.

However, in the interest of taking a company and its stock for exactly what it is, nothing more, nothing less, Dutch Bros maintains a fine (also, nothing more, nothing less) balance sheet, its total annual revenue growth has been strong, its total cash from operations have been solid and its return and net profitability (each on a TTM basis) metrics trail the industry by an objectively wide margin, but this is usually the case with younger, growing companies.

Putting all of this together, we think a “hold” rating is most appropriate.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.