As a former, 5 '9 starting quarterback for the third largest school in my state, one of my worst pet peeves was when recruiters would swoon over the 6' 2 guys who couldn’t hit the side of a barn if they tried. (Not bragging here, but check out my hudl you dang fact checkers). 

(Source: Giphy) 

Well, that’s exactly how Dutch Bros is feeling right about now. In light of cruising past Wall Street’s earnings estimates last week, Dutch Bros (with a sick ticker symbol - $BROS), is getting put in the back seat as the stock has plunged -23.36% the past five trading days due to their future guidance, and their overrated competitor - Starbucks. Shocker. 

(Source: Yahoo Finance) 

This is largely thanks to the news of Elliot Management and Starboard taking activists' stake in Starbucks to right the ship that Howard Schultz left to every one of his predecessors. And now with a new CEO at the helm (thanks, Chipotle), every investor and their spoiled daughters are swooning over the company in hopes of an even better pumpkin spice latte season ahead. Spoiler: It’ll still be just as annoying as last year.
 

(Source: Wall Street Journal) 

However, while Starbucks is looking to get a grip on its financials and growth as a company, Dutch Bros, the dark horse, is clearly making strides behind the scenes. For instance, not only were their numbers screaming “Come at me Bro” to Wall Street as their EPS beat estimates by 48%, but Dutch’s revenue also came in hot, beating estimates by 2.18%, as the company reported $324.91 million (topping analyst predictions of $317.98 million).

(Source: Yahoo Finance) 

Additionally, when looking at the 12 month comparison, Dutch Bros is clearly winning as revenue increased 30.3% YoY, while net income and operating income exploded 333.87% and 233.64% YoY. 

Yet, even with this impressive showing the company still plummeted a total of -30.99% the past month… why? Well, apparently, futuristic imaginary numbers can turn a great earnings report into a freak show really fast. In short, investors were not too keen on Dutch Bros not being as aggressive in their growth plans as they predicted. 

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But in my personal view, Dutch Bros decision to slow expansion actually makes sense over the long run. You see, during the earnings call, Dutch Bros announced a shift in their opening store strategy, where instead of opening as many locations as possible, they’re now focusing on high-potential spots. (Read: Aim small, miss small).

 

(Source: Investopedia)

You know, because why open up as many locations as possible and expose yourself to more money pits, when you can go after the high-traffic, high-revenue locations? Seems plausible right? Well according to analysts, if you ain’t burning cash, you’re turning into trash. Meaning this new strategy along with Starbucks stealing the spotlight for everything they do under the sun, sent Dutch Bros into a spiral. 

(Source: Giphy) 

Now with that said, despite the stock’s drop, some analysts are still voicing their optimism for Dutch’s future. Guggenheim for example, upgraded the stock to a buy with a price target of $36, indicating a 19.13% upside at the time of publishing. Stifel and Nicolaus, on the other hand, are still optimistic with a 39.81% potential upside on the stock even though they lowered their target by $2 to a $38 price target. 

(Source: Street Insider) 

The reason for the underrated bullish sentiment? Simply put, it’s Dutch Bros unique business model and loyal customer base. The company, known for its high-energy service and innovative drinks, has no doubt built a cult-like following of its own.

And while they’ve managed to expand rapidly in the past, while maintaining a strong brand identity, their focus on customer experience and community engagement definitely sets them apart from other woke competitors like Starbucks. 

(Source: Giphy) 

However, until the Starbucks mess resides, I still wouldn’t touch Dutch Bros as of now. Wall Street clearly doesn’t like Dutch’s new strategic opening strategy, and even though the stock is up +0.58% on the day… I definitely don’t think they are out of the woods yet.

So with that said, I’d definitely keep an eye on Dutch going forward. The stock is down, yet, the company financials are impressive - especially compared to Starbucks below average showing. And while it’s tempting to “BTFD” on this underdog - I’d definitely wait for further confirmation before taking any action. 

(Source: Giphy) 

At the time of this writing, Dutch Bros is up +0.52% on the day, (down -5.99% YTD). 

Stocks.News holds positions in Starbucks Corporation as mentioned in the article.