You’ll almost certainly have to pay higher multiples for growth stocks than for their value counterparts. A more expensive valuation means the market still has high growth expectations. That’s fine, provided the company meets or exceeds them.
Dutch Bros (NYSE: BROS) certainly trades at a rich valuation, with a price-to-earnings (P/E) ratio of 58. That’s more than double the S&P 500 index’s P/E of 26. However, with Dutch Bros’ still-bright growth prospects, investors will likely find the purchase worthwhile.
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The company has done well despite operating in a very competitive arena. After all, there aren’t large barriers to entry in the beverage business. But Dutch Bros has distinguished its coffee, energy drinks, and other beverage offerings by concentrating on speed, quality, and customer service. There’s no better testament than sales growth.
In fact, it has produced 13 straight quarters of same-store sales (comps) increases. That includes the second quarter’s 5.8% comps growth. Better still, it continues to draw customers, with same-shop transactions up by 1.7% year over year.
Unlike some growth companies, Dutch Bros operates profitably. Its second-quarter diluted earnings per share grew 40% from a year ago to $0.28.
But its expansion opportunity makes Dutch Bros a compelling growth stock. It started the year with 1,136 locations in 25 states. During the first six months of this year, it added 89 stores, including 48 in the latest quarter. Management expects to add at least 185 locations this year.
With a business that resonates with customers and a large expansion opportunity, Dutch Bros’ stock should be a rewarding investment for growth investors.
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