In a head-to-head evaluation, we delve into the financial landscapes of two prominent coffee retailer stocks, namely Starbucks and Dutch Bros stock, aiming to discern which one is poised to stir up more upside for investors. While Starbucks reigns as the global coffee giant, Dutch Bros claims its own space as a competing drive-through coffee chain within the United States.
Divergent Trajectories: Stock Performance
Starbucks has witnessed a 6% dip in its year-to-date stock performance, yet it boasts an 11% surge over the past 12 months. On the contrary, Dutch Bros stock has showcased a 10% ascent in the year-to-date period. However, a closer inspection unveils a 26% retreat in BROS stock value over the last year.
Valuations Under the Lens
While the stock trends appear divergent, the true narrative lies beneath the surface. Comparing 12-month trajectories reveals a stark difference in valuations between these coffee contenders. To gauge these valuations, we scrutinize their price-to-earnings (P/E) ratios in relation to each other and their industry.
Starbucks (SBUX:NSD): The Deceptive P/E
With a P/E ratio of 29, Starbucks (SBUX:NSD) appears to trade at a discount compared to its industry. However, this requires context, as it aligns with the mid-range P/E levels for the company, excluding a valuation surge observed between June 2020 and July 2021. The looming concern is its escalating debt, particularly amid shrinking free cash flow margins. An air of caution seems prudent.
Starbucks carries a net debt of $20.8 Billion, of which $13.6 Billion constitutes long-term debt. This escalating debt is magnified by a near 30% increase in its 10-year long-term debt growth. The debt-to-equity ratio treads into the negative territory, hinting at elevated risk levels. Furthermore, this debt burden could potentially hinder capital returns to shareholders, undermining key support for SBUX stock.
Price Target for SBUX: Bullish Undertones
Starbucks retains a “Buy” consensus, boasting nine Buy ratings, 10 Holds, and zero Sells in the past three months. The average price target of $116.36 reflects a 22.6% upside potential.
Dutch Bros (BROS:NYE): An Extreme Valuation
Contrasting starkly, Dutch Bros (BROS:NYE) flaunts a P/E ratio exceeding 55,000 – a figure that raises eyebrows. With modest profitability in 2022 and revenue shy of $1 billion, this valuation appears unwarranted. A bearish stance gains traction.
A recent surge in BROS stock followed a report of second-quarter profits surpassing expectations. Although revenue estimates fell short by 1%, adjusted earnings per share exceeded consensus predictions, showcasing a robust net profit of $9.7 million and a 3.8% uptick in same-shop sales. The path to profitability over the last 12 months adds to Dutch Bros’ accolades, backed by impressive contributions from company-owned shops.
Price Target for BROS Stock: Eyes on the Upside
Dutch Bros stock garners a “Buy” consensus, encompassing two Buy ratings, six Holds, and zero Sells in the past three months. The average price target of $36.13 indicates a 20.3% potential upside.
In Summation: Bears on SBUX and BROS Stock
While the choice between Starbucks and Dutch Bros stock may appear intricate, distinct bearish viewpoints emerge for each. Starbucks grapples with concerning debt dynamics, a complex issue that might take time to address. On the other hand, Dutch Bros’ overblown valuation in relation to its modest sales and profits raises the flag of caution.
Consequently, Dutch Bros stock emerges as the victor in this comparison, albeit with a caveat. The prospect of a significant stock price correction could potentially reposition it as an enticing opportunity.
The caffeinated investment realm offers a nuanced perspective, where the fate of each coffee contender hinges on distinct variables. As investors sip on the analysis, the aroma of uncertainty lingers, waiting to be brewed into fruitful returns.