Will Dutch Bros Follow in Starbucks’ Footsteps, or Krispy Kreme’s?

Dutch Bros has priced its IPO above the expected range at $23. What's the forecast for BROS stock, and should you buy it now?

Mohit Oberoi, CFA - Author

Sep. 15 2021, Published 9:05 a.m. ET

People in a car holding Dutch Bros cups
Source: Dutch Bros Facebook

Coffee chain Dutch Bros has finalized its IPO price and is set to begin trading on Sep. 15. There has been a wave of new IPOs after a dull August. What’s the forecast for Dutch Bros stock, and will it go up after its IPO?

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Dutch Bros was founded by brothers Dane and Travis Boersma in 1992 in Oregon. The company now has a total of 470 locations in 11 U.S. states, primarily in the West and Southwest. The company has raised $484 million from the IPO and is set to be the biggest IPO in Oregon.

Dutch Bros priced its IPO above the expected range

Dutch Bros priced its IPO at $23 which was above the previous range of $18–$20. The company pricing the IPO above the expected range is a welcome break for markets—too many IPOs in 2021, including Krispy Kreme's, were priced below the range. Robinhood also had to price its IPO at the lower end of its range, at $38.

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Several companies that have gone public over the last year are trading below their IPO price. One is Sportradar, which went public on Sep. 14.

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IPO investors' struggle this year is best reflected in the performance of the Renaissance IPO ETF. The ETF, which invests in the IPOs of newly listed companies, is up only 5 percent year-to-date, while the SPDR S&P 500 ETF is up 18.8 percent.

ipos are underperforming in
Source: TIKR
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Dutch Bros' stock forecast

The IPO has valued Dutch Bros stock at $3.8 billion. In this year's first half, the company had total revenue of $228 million, of which almost $181 million came from company-operated stores and $47 million came from franchising and other sources. In 2020, the company reported revenue of $327 million.

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Based on the company's financials, its 2020 price-to-sales multiple is 11.6x. The company’s revenue is growing fast as it continues to add more stores. Despite the COVID-19 pandemic, it opened 71 stores in 2020, compared with 42 stores in 2019.

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Although Starbucks (SBUX) and Dutch Bros are not strictly comparable—they have different business models and Starbucks is a mature company—Dutch Bros' valuation doesn't look unreasonable considering Starbucks's last-12-month price-to-sales multiple is 5.2x

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Is BROS a good stock to buy?

Dutch Bros looks like a good stock to buy. The company is expanding its store footprint and should have greater financial flexibility to pursue growth after its IPO. Whereas bears are likely to compare Dutch Bros to Krispy Kreme, which priced its IPO at a massive discount and saw its stock plummet even further after the offering, bulls see Dutch Bros as the next Starbucks—it's especially popular among Millennials.


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