The S&P 500 is up more than 11% so far in 2023, which is a display of investor confidence, but still nowhere near getting out of this bear market.
However, in the stock market, things can change rapidly. And even if they don't, one thing investors know is that a bull market will come at some point. Although it can be scary to invest when the chips are down, investors will regret not taking the opportunity to buy amazing stocks on sale right now.
Dutch Bros (BROS -0.66%) stock is down 33% over the past year. Here are three reasons to buy it right now.
1. Expansion opportunities
Growth stocks are very attractive because they offer the chance to buy stocks that have massive opportunities to grow their revenue. That often comes with some measure of risk. For Dutch Bros, the expansion opportunities present an incredible source of growth, and the associated risk is mitigated for several reasons.
First, the expansion possibilities. So far, Dutch Bros has developed a strong brand identity with products customers like and a healthy operational model. It's bringing its success to new markets and sees the opportunity for 4,000 stores over the next 10 to 15 years. So far, it has 716 stores after opening 133, an annual record, in 2022, and another 45 so far this year. Its goal is 150 in 2023.
Beyond the growth that new stores bring in any environment, they play a crucial role in keeping sales growing. That's because it's hard to generate comparable sales (comps) growth in this pressured environment. Large retail and restaurant chains that are already built out are really feeling the heat, because there aren't a lot of ways to stimulate organic growth right now.
Dutch Bros' sales growth is robust, and profitability is improving. Sales increased 30% over last year to $197 million in the 2023 first quarter, although comps declined 2%. It's the new stores that are providing the growth, and they present a powerful long-term growth opportunity.
2. Improving profitability
So why is the risk mitigated? First, it's already been profitable. Typically, the biggest risk for a high-growth company that's investing in its business is massive losses.
But Dutch Bros' model lends itself to profitability. It's pressured now between rollout expenses and inflation, but the company posted net profits before, and it should get back there. Similarly, it isn't generating positive cash flow, but it has before.
Next, profitability is improving. In the first quarter, net loss came in at $9.4 million, better than $16.3 million last year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 147% more than last year to $29.1 million.
Stores open longer tend to be more profitable. Consider the gross margin for stores at different points in their journey.
Data source: Dutch Bros.
Dutch Bros is still a young company, and as it matures, profitability should keep getting better.
3. The price looks right
At the current price, Dutch Bros stock trades at a price-to-sales ratio of just under 2. That's very cheap for a growth stock. It's also near its cheapest valuation.
BROS PS Ratio data by YCharts
Cheap stocks aren't a bargain if they don't offer real growth opportunities. But if you can envision a bull market coming and are able to see how Dutch Bros can grow, this looks like a great deal.
