Drive-thru coffee chain operator Dutch Bros Inc. (BROS) went public on September 17, 2021. The company reported a better-than-expected third-quarter earnings report, as its revenue and adjusted earnings per share of $129.80 million and $0.23 beat analysts’ expectations of $124.90 million and $0.30 loss per share, respectively. The company plans to open at least 112 new shops in 2022.

However, the stock has lost 4.2% over the past month and 3.4% over the past three months to close yesterday’s trading session at $49.13. In addition, it is currently trading 39.6% below its 52-week high of $81.40, which it hit on November 1, 2021. Moreover, the rapid spread of the Omicron coronavirus variant, labor and supply shortages, and rising input costs make its near-term prospects look uncertain.

Here’s what could influence BROS’ performance in the upcoming months:

Favorable Analyst Estimates

For fiscal 2022, analysts expect BROS’ EPS and revenue to grow 60% and 37.9% year-over-year to $0.32 and $669.83 million, respectively. In addition, its EPS is expected to grow at 38.2% per annum over the next five years. Moreover, Wall Street analysts expect the stock to hit $68.63 in the near term, indicating a potential upside of 39.7%.

Low Profitability

In terms of the trailing-12-month gross profit margin, BROS’ 32.07% is 10.7% lower than the industry average of 35.91%. Likewise, its trailing-12-month levered FCF margin of 2.80% is 52.4% lower than the industry average of 5.88%. Moreover, the company’s negative trailing-12-month net income margin and ROTA compare with industry averages of 6.56% and 5.94%, respectively.

Stretched Valuation

In terms of forward P/CF, BROS’ 115.58x is 841.7% higher than the industry average of 12.27x. Likewise, its forward non-GAAP P/E of 109.18x is 657.3% higher than the industry average of 14.42x. Moreover, the stock’s forward EV/S and P/S of 5.46x and 5.05x are higher than the industry averages of 1.41x and 1.16x, respectively.

POWR Ratings Don’t Indicate Enough Upside

BROS has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. BROS has a C grade for Value, consistent with its higher-than-industry valuation ratios.

In addition, BROS has a C grade for Quality, in sync with its lower-than-industry profitability ratios.

BROS is ranked #39 out of 46 stocks in the Restaurants industry. Click here to access BROS’ ratings for Stability, Sentiment, Momentum, and Growth.

Bottom Line

BROS is currently trading below its 50-day and 200-day moving averages of $57.66 and $54.44, respectively, indicating a downtrend. So, the stock looks overvalued at the current price level, and it could be wise to wait for a better entry point.

How Does Dutch Bros (BROS) Stack Up Against its Peers?

While BROS has an overall POWR Rating of C, you might want to consider investing in the following Restaurants stocks with an A (Strong Buy) or B (Buy) rating: Good Times Restaurants Inc. (GTIM), Ruth’s Hospitality Group, Inc. (RUTH), and Chuy’s Holdings, Inc. (CHUY).

BROS shares were trading at $53.55 per share on Thursday afternoon, up $4.42 (+9.00%). Year-to-date, BROS has gained 45.99%, versus a 27.73% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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