the Dutch brothers. (NYSE: BROS) recently completed its IPO, and although the company is currently a relatively small coffee chain, primarily based on the West Coast, it is growing rapidly. In this fool live Video clip, recorded September 27, Fool.com contributor Danny Vena explains why investors might want to keep a close eye on this customer-centric channel.
Danny Vena: And essentially, Dutch Brothers follows the Starbucks (NASDAQ: SBUX) model. However, this is a company that is not necessarily known. If you go back to 2015, there were around 254 stores, and that’s up to 471 stores to end the June quarter, so that’s only in 11 states at the moment. It’s still a fairly small operation, however, according to its S-1, it’s one of the fastest growing brands in the restaurant and restaurant industry in the United States.
One thing I saw that was really positive was that they grew up smart. They’ve been around for a while now, and they’ve had 14 consecutive years of positive same-store sales growth. Now, it’s going to be interesting to watch and see whether or not they can continue, but it’s a pretty impressive measure. In their regulatory documents, Dutch Brothers said what sets them apart is a fun, loving and mind-blowing company that makes a huge difference one cup at a time. What does that mean exactly? Because it sounds like a lot of corporate double talk, it sounds like an ad campaign.
What really sets them apart is that they offer these cutting edge flavors not only of coffee, but other drinks as well. They have coffee, they have lemonade, they have energy drinks, and they make them all on the spot. You’re not going to go there to buy a Red Bull, they have their own Blue Rebel energy drinks. But I was just looking at the regulatory record and the names of some of their drinks are quite catchy. They have their Iced Tiger’s Blood Limonade, their Hot Annihilator, their Birthday Cake Frost, and their Golden Eagle Freeze, so that gives you an idea. Now they also have what they call a so-called secret menu. We’re just the people who really frequent the place, get to know a little bit more about those specialty drinks that Starbucks has every now and then.
Now so far it seems to be working, last year the company saw 37% year-over-year revenue growth, although its net profit fell 80%, which is not surprising given the pandemic. Now, in the first six months of this year, their earnings increased by 51% and their net income was actually positive and increased by 11%. Now, one of the things that I find interesting here is the fact that the IPO went very well. This is a company that has just been listed on the stock exchange, the stock has performed very well after its IPO, and it was interesting that there was a strong demand for the shares.
The company had originally planned to offer its shares between $ 18 and $ 20, and then they ended up pricing that $ 23 per share the day before the IPO, which showed how much demand was. strong. In the first two days of trading, as Matt noted, here’s a stock that peaked at over $ 50, 90% above its IPO price. Now one thing that cautions me here is that it has a multi-class overhead structure and the co-founder and CEO controls 74% of the voting rights in the company. It’s not a very shareholder-friendly move, something to watch out for, just so I can get it out of there.
Now the reason I ranked it lowest is that it remains to be seen how well they will be able to keep up with Starbucks. Starbucks is a monster and has proven itself year after year. Whether or not they can continue once they hit that growth wall that they’re inevitably going to come to, and whether or not they can continue to compete with Starbucks is the big question on my mind.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.