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Despite a ton of volatility, shares of Dutch Bros (NYSE: BROS) are still up 98% in the past 12 months (as of April 22). The up-and-coming coffeehouse chain is starting to win over investors who are interested in growth potential for their portfolios.
However, the industry is extremely competitive. It's dominated by incumbent Starbucks (NASDAQ: SBUX). The Seattle-based enterprise has seen its shares drop meaningfully, as they are down 28% from the 52-week high in March.
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Investors looking to put capital to work in the retail coffee industry are looking at Dutch Bros and Starbucks. Which of these two is the best stock to buy right now?
Aiming for 7,000 stores
Dutch Bros is relatively small in the domestic restaurant sector. It recently opened its 1,000th location. It has attracted customers with its drive-through locations that emphasize convenience, a big list of menu options that allow for customization, and friendly customer service. The store count was just at 503 about three and a half years ago, so expansion has been and will continue to be a key part of the strategy.
The company has a notable presence in the western and southern parts of the U.S. Zooming out and focusing on the big picture, it's clear that Dutch Bros has a huge opportunity to rapidly expand the store base across the country. This is exactly what management is trying to do.
The total addressable market is 7,000 locations. That figure is up significantly from a previous target of 4,000 stores. Clearly, the leadership team is very optimistic about how Dutch Bros is performing, which would push them to introduce an even loftier goal.
If the business is able to expand its footprint seven-fold, revenue and net income would be astronomically higher. And that would eventually make the current price-to-earnings ratio of 174 not matter.
Dominating the industry
It's not hard to be pessimistic about the current state of affairs at Starbucks. During the fiscal 2025 first quarter (ended Dec. 29), the company reported a same-store sales decline of 4%. This was the fourth straight quarter of a year-over-year drop, highlighting ongoing struggles to drive foot traffic and get back to registering growth.
Consumers weren't happy with price increases, long wait times for orders, and the complexity of the menu. Starbucks also might have lost customers due to political or social issues. But CEO Brian Niccol is working hard to turn things around by improving the customer experience, supporting employees, and highlighting the brand.