Could This Coffee IPO Become the Next Starbucks? – Motley Fool


Returns as of 10/07/2021
Returns as of 10/07/2021
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Dutch Bros. (NYSE:BROS) recently completed its IPO, and while the company is a relatively small, primarily West Coast-based coffee chain right now, it is growing fast. In this Fool Live video clip, recorded on Sept. 27, contributor Danny Vena explains why investors might want to keep a close eye on this customer-focused chain.

Danny Vena: And essentially, Dutch Brothers is following the Starbucks (NASDAQ:SBUX) model. Now, this is a company that is not necessarily well-known. If you go back to 2015, it had about 254 stores, and that’s up to 471 stores to end the June quarter, so it’s only in 11 states right now. This is still a pretty small operation, however, according to its S-1, it is one of the fastest-growing brands in the foodservice and restaurant industry in the United States.
One thing that I saw that was really positive is that they have been growing smartly. They’ve been around for a while now, and they have 14 consecutive years of positive same-store sales growth. Now, it’s going to be interesting to watch and see whether or not they can keep that up, but that’s a pretty impressive metric. In their regulatory filings, Dutch Brothers said that what sets them apart it’s a fun, loving, mind-blowing company making a massive difference one cup at a time. What does that mean exactly? Because it sounds like a lot of corporate doublespeak, it sounds like an advertising campaign.
The thing that really sets them apart is that they come up with these cutting-edge flavors of not only coffee but other drinks. They have coffee, they have Lemonade, they have energy drinks, and they make them all in-house. You’re not going to go there to get a Red Bull, they’ve got their own proprietary Blue Rebel Energy Drinks. But I was just looking on the regulatory filing and the names of some of their drinks are pretty catchy. They have their Iced Tiger’s Blood Lemonade, hot Annihilator, Birthday Cake Frost, and Golden Eagle Freeze, so this gives you an idea. Now, they also have what they call a so-called secret menu. We’re only the folks who really frequent to place, get to know a little bit about those specialty drinks that Starbucks comes up with every once in a while.
Now, so far, that appears to be working, last year, the company had revenue that grew 37% year-over-year, though its net income declined by 80%, which is not surprising considering the pandemic. Now, in the first six months of this year, revenue climbed 51% and their net income was actually positive and climbed 11%. Now, one of the things that I think is interesting here is the fact that the IPO went really well. This is a company that just recently went public, the stock did very well after its IPO, and it was interesting that there was some strong demand for the shares.
The company originally planned on offering its shares between $18 and $20, then they ended up pricing in that $23 a share, the night before the IPO, that showed how strong the demand was. In the first couple of days of trading, as Matt noted, here’s a stock that it peaked at over $50, so 90% above its IPO price. Now, one thing that’s a caution to me here is that, it’s got a multi-class air structure, and the co-founder and CEO controls 74% of the voting power of the company. Not a very shareholder-friendly move, something to keep an eye on, just so that I will get this out of there.
Now, the reason that I ranked it lowest because it remains to be seen how well they will be able to do up against Starbucks. Starbucks is a behemoth and has proven itself year after year after year. Whether or not they’re going to be able to continue on once they hit that growth wall that they are inevitably going to get to, and whether or not they can continue to compete with Starbucks is the big question in my mind.
Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Advisor list price is $199 per year.
Stock Advisor launched in February of 2002. Returns as of 10/07/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Making the world smarter, happier, and richer.

Market data powered by Xignite.