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My DD on How Dutch Bros Coffee Will Be Heading to $120

Hey guys, this will be a DD report compiled of technicals, fundamentals, and random ass sentiment on why I think Dutch Bros (BROS) will grow to become a $20B company within 6 months.

The first starts with growth from their latest earnings report last week. Dutch Bros earned 23 cents per share. That was above FactSet estimates for six cents per share.

Revenue rose 49.8% to $129.8 million, also above estimates for $125.2 million. Same-store sales gained 7.3%, above expectations for a 5% increase.

Dutch Bros also forecasts next quarter (Q4) revenue of between $125 million and $128 million. That was above Wall Street estimates for $121.4 million. Despite all this growth, little money was spent on advertising. Most came from word of mouth from the younger generation and their parents who drive them. Looking much further ahead, Dutch Bros plans on expanding to 4,000 stores within 10 years – an aggressive 800% increase from today.

Their decision to grow company operated stores instead of franchise is why I think their revenue growth will continue to grow exponentially. Here’s an excerpt from the 10-Q:

“Company-operated Shop Revenue For the three months ended September 30, 2021, company-operated shop revenue grew 62.9% to $108.7 million, as compared to $66.7 million in the corresponding prior year period or an increase of $42.0 million. Company-operated shops in the comparable shop base contributed $3.0 million to this increase (4.7% same shop sales), while new company-operated shops opened during 2020 and 2021 contributed $39.0 million to this increase. For purposes of calculating company-operated same shop revenue growth, company-operated shop revenue for 145 shops was included in the comparable shop base. For the nine months ended September 30, 2021, company-operated shop revenue grew 64.7% to $289.5 million, as compared to $175.8 million in the corresponding prior year period or an increase of $113.8 million. Company-operated shops in the comparable shop base contributed $11.7 million to this increase (8.3% same shop sales), while new company-operated shops opened during 2020 and 2021 contributed $102.1 million to this increase. For purposes of calculating company-operated same shop revenue growth, company-operated shop revenue for 120 shops was included in the comparable shop base.”

Now let’s transition into the fundamentals. Combining all of the information above with the fact that Starbucks missed on revenue for 3 out of the last 4 quarters tells us in a broader sense that the younger generation is gravitating towards Dutch Bros. It has a much different business model with no inside dining, two separate drive thru windows, outdoor dining that optimizes empty space between the building and drive thru,and you’re greeted by a “broista” who approaches your vehicle rather than a speaker. Customer service and promotions have customers coming back, but most come back simply because the coffee tastes better with more variety than competitors. Dutch Bros doesn’t have to spend money on the overhead of a larger building and their outside dining is popular among kids after school. Their app just launched within the year and already has over 2 million users. Coffee only represents 30% of their sales. This shows us how much variety their menu has, which also includes their Rebel energy drinks and muffins.

The following is kinda random but it fights against the bear case of market cap divided by store count. $10B/500=$20M per store. We know damn well one of these things don’t cost $20M. Are we paying for a store? Or are we paying for the company that runs it? Starbucks has a ratio of $130B/31200=$4M. So a much more established company that owns 62 times more stores than Dutch Bros is getting a 5 times cheaper price per store… This leaves us with four options: 1.) Starbucks is 5 times undervalued. 2.) Dutch Bros is 5 times overvalued. 3.) The premium is for future growth potential and with 4,000 stores soon making their way east, the market cap/store count ratio would put the valuation at half of Starbucks. If we considered Starbucks as a base for the ratio which Dutch Bros matched, it would put Dutch Bros at $120 a share 10 years from now. Still a 10% increase YoY. 4.) Looking at Market Cap is pointless. See Tesla for details.

TLDR: Dutch Bros could become the next Starbucks and they only have 25 million shares in circulation. If you have visited and tasted their coffee before, you know it’s possible due to next generation’s preferences and the taste. Very little shares in circulation could send this to $300 if WSB gets behind it. Cramer likes it so maybe we could troll him by making it a meme stock. 😂

Not sure if anyone will actually read this but thanks for your time and let me know if you think my DD is accurate or if there are flaws. Happy investing!

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