Why Dutch Bros Stock Ascended by Nearly 14% in April

Last month, the stock of coffee shop operator Dutch Bros (BROS 1.29%) acted as if it had been given a shot of particularly strong espresso. The company’s shares zoomed almost 14% higher in April, fueled not by highly caffeinated java but a series of very bullish updates from analysts tracking the stock.

Extra shots of bullishness

That bull parade started just after the first week of the month, when Telsey pundit Sarang Vora initiated coverage of Dutch Bros stock with an outperform (i.e., buy) recommendation and $66 per share price target. According to reports, Vora considers the company to be a unique and highly differentiated business in the retail beverage sector, with excellent customer loyalty and good unit economics.

Image source: Getty Images.

Shortly after that, both UBS’s Dennis Geiger and RBC Capital’s Logan Reich both reiterated their equivalent of buy recommendations on Dutch Bros. Of the two, Geiger is the more bullish on the coffee slinger, as his price target was $85 per share versus his peer’s $75. He feels the company has solid momentum underpinning its continued expansion, according to reports.

Reich’s analysis, according to reports, included a somewhat cautious take on the company’s persistently strong competition (its rivals include not only Starbucks and the fast-food-and-coffee giant McDonald’s, but also thousands of mom-and-pop java joints). The analyst expressed concern that new drink introductions from the big players in particular could ding Dutch Bros.

Finally, near the end of the month, the company’s stock earned a modest price target raise from a prognosticator. This was DA Davidson’s Matt Curtis, who upped his fair value assessment to $70 per share from $67. He maintained his buy recommendation on the stock.

Although Curtis flagged the same concerns Reich mentioned – specifically, McDonald’s launch of its colorful lineup of specialty drinks – he believes it will be a net positive for the beverage retail space, according to reports. After all, he wrote, the broader designer coffee segment was lifted by the same company’s rollout of the McCafe concept in the late 2000s.

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NYSE: BROS

Dutch Bros

Today’s Change

(-1.29%) $-0.69

Current Price

$52.85

Key Data Points

Market Cap

$8.8B

Day’s Range

$51.55 - $54.30

52wk Range

$44.58 - $77.88

Volume

198K

Avg Vol

4.9M

Gross Margin

25.01%

That’s one expensive cup of java

Visiting a Dutch Bros coffee shop feels like patronizing an energetic, quickly growing company that has managed to craft a unique identity and personality – no mean feat in a world of cafes that can often feel samey and nearly generic.

Unlike some of the analysts following the company, I’m not so worried about competition. After all, espresso coffee is a long-term trend that shows little sign of fading, and in the U.S., such drinks are popular enough to support what’s now a huge industry.

With Dutch Bros, I’d be more concerned about valuations. Even considering the solid results of the company’s first quarter (published in early May), its valuations look awfully high for a business in a relatively mature beverage segment. It trades at a forward P/E of almost 72, for example, and a price/sales ratio well over 4.

Like a vast number of American consumers, I like coffee, and I’m certainly partial to Dutch Bros and its lively drink lineup. But its stock looks pricey to me, so I’d give it a miss these days.