Dutch Bros stock analysis. BROS stock.
Join our newsletter for more ideas: https://www.overlookedalpha.com
By the end of March 2023, this number had increased to 716 (with 278 franchised shops & 438 that are company-operated). And management has ambitious plans for growth, it wants 1000 shops by 2025 and 4000 shops in 10-15 years time.
Looking at the latest financials, the company has a market cap of 5.3 billion dollars with 14 million of cash and 96 million of long term debt.
Revenue over the last 12 months is 784 million, adjusted ebitda is 47 million but the company recorded negative net income and negative free cash flow.
So the company is valued at 6.6 times revenue or 113 times ebitda with gross margins around 25%.
As a beverage drive-thru, Dutch Bros revenue is divided into 3 segments:
• Coffee makes up 50%
• Energy drinks including their own Blue Rebel brand makes up 25%
• And the other 25% is from teas, sodas and smoothies
The challenge with this impressive growth is continuing to find profitable locations and Dutch Bros margins cause some concern.
Their operating margin in 2019 was close to 13% but its fallen to zero over the last twelve months.
This was mainly due to an increase in rent and in the prices of raw materials, particularly coffee beans.
A key consideration for investors is whether the decrease in margins is a warning signal for things to come.
On one hand, the drop in margins may be part of the company’s strategy. Affordable prices and memberships are a good way to develop customer loyalty and drive growth which can be monetized down the road.
On the other hand, if Dutch Bros is unable to pass costs to the final customer, it means the company’s profits are too dependent on raw materials and management can do very little to impact margins.
#dutchbros #stockstowatch #stocks #investing
Join our newsletter for more ideas: https://www.overlookedalpha.com
By the end of March 2023, this number had increased to 716 (with 278 franchised shops & 438 that are company-operated). And management has ambitious plans for growth, it wants 1000 shops by 2025 and 4000 shops in 10-15 years time.
Looking at the latest financials, the company has a market cap of 5.3 billion dollars with 14 million of cash and 96 million of long term debt.
Revenue over the last 12 months is 784 million, adjusted ebitda is 47 million but the company recorded negative net income and negative free cash flow.
So the company is valued at 6.6 times revenue or 113 times ebitda with gross margins around 25%.
As a beverage drive-thru, Dutch Bros revenue is divided into 3 segments:
• Coffee makes up 50%
• Energy drinks including their own Blue Rebel brand makes up 25%
• And the other 25% is from teas, sodas and smoothies
The challenge with this impressive growth is continuing to find profitable locations and Dutch Bros margins cause some concern.
Their operating margin in 2019 was close to 13% but its fallen to zero over the last twelve months.
This was mainly due to an increase in rent and in the prices of raw materials, particularly coffee beans.
A key consideration for investors is whether the decrease in margins is a warning signal for things to come.
On one hand, the drop in margins may be part of the company’s strategy. Affordable prices and memberships are a good way to develop customer loyalty and drive growth which can be monetized down the road.
On the other hand, if Dutch Bros is unable to pass costs to the final customer, it means the company’s profits are too dependent on raw materials and management can do very little to impact margins.
#dutchbros #stockstowatch #stocks #investing
Category
🗞
NewsTranscript
00:00 Dutch Bros has been increasing its beverage drive-thru locations significantly. At the
00:05 end of 2019 there were a total of 370 shops. By the end of March 2023 this number had increased
00:11 to 716, with 278 franchised shops and 438 that are company operated. And management
00:19 has ambitious plans for growth. It wants 1,000 shops by 2025 and 4,000 shops in 10 to 15
00:27 years time.
00:28 Looking at the latest financials, the company has a market cap of $5.3 billion with $14
00:33 million of cash and $96 million of long term debt. Revenue over the last 12 months is $784
00:39 million. Adjusted EBITDA is $47 million but the company recorded negative net income and
00:45 negative free cash flow. So the company is valued at 6.6 times revenue or 113 times EBITDA
00:52 with gross margins around 25%.
00:55 As a beverage drive-thru operator Dutch Bros revenue is divided into three segments. Coffee
01:01 makes up 50%, energy drinks including their own Blue Rebel brand makes up 25% and the
01:07 other 25% is from teas, sodas and smoothies. The challenge with this impressive growth
01:13 is continuing to find profitable locations and Dutch Bros margins cause some concern.
01:19 Their operating margin in 2019 was close to 13% but it's fallen to zero over the last
01:25 12 months. This was mainly due to an increase in rent and in the prices of raw materials
01:29 particularly coffee beans.
01:31 So a key consideration for investors is whether the decrease in margins is a warning signal
01:36 for things to come. On one hand the drop in margins may be part of the company's strategy.
01:42 Affordable prices and memberships are a good way to develop customer loyalty and drive
01:46 growth which can be monetised down the road. On the other hand if Dutch Bros is unable to
01:51 pass costs to the final customer it means the company's profits are too dependent on
01:55 raw materials and management can do very little to impact margins.
01:59 Based on financial statements Dutch Bros earns a little over $1 million for each one of its
02:04 stores. So let's say the company manages to hit 3,500 stores by 2033. In that scenario
02:12 annual revenue might be in the region of $4 billion. The company is targeting 30% EBITDA
02:17 margins but after stock based compensation and other expenses the net margin is likely
02:22 to be closer to 15-20%. Assume net income then of $700 million in 10 years time and
02:29 a multiple of 25 times earnings takes the company to a valuation of $17.5 billion which
02:35 works out to an investment return of 12.9% per year.
02:38 That's not a great return for such an aggressive and optimistic forecast. Ultimately this seems
02:44 like a lot of risk to take in a crowded competitive market.
02:48 That said I've never been inside a Dutch Bros so I can't comment on the quality of
02:52 the product. For now I give the stock a neutral rating but these are my personal opinions
02:56 not financial advice and I've got no position in the stock. For more detailed investing
03:01 ideas visit our website ioverlookedatalfur.com