shares of Dutch Bros (NYSE: BROS) Up 71% year to Dec. 4, most of its gains came in the wake of the company’s third-quarter earnings report from Nov. 6.
Some investors may be reluctant to jump in with the stock trading at 187 times, especially after the recent rise in share price. earning.
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However, there is a chart that shows that the stock still has a lot of upside potential, even after its recent rally.
Dutch Bros. is reinvesting most of its profits back into the business by opening more locations across the U.S. It operated with a slim net profit margin of just 3.7% last quarter. That’s common for smaller restaurant operators, but it also means investors need to look at other metrics to see real value in the shares.
Here is a comparison Price-to-sales (P/S) ratio of starbucks (NASDAQ: SBUX ) and Dutch Bros. about their business history. As you can see, in its three years as a public company, Dutch Bros. stock has traded well within the range of P/S ratios that Starbucks has seen in its 30-year trading history.
In fact, Starbucks stock has grown at about the same rate as its annual revenue growth over the past 30 years. An investor who put $10,000 into Starbucks on December 4, 1994, would have $1.2 million today, excluding dividends.
With revenue growth and expansion crucial to Starbucks’ decades-long gains, that explains why investors were so excited by Dutch Bros.’ 28% year-over-year revenue growth in Q3. The company had opened 950 stores in just 18 states at the end of the quarter, but it will likely open hundreds, if not thousands, of more locations across the U.S. over the next few decades.
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