The coffee wars are on. We're going to compare how the younger Dutch Bros. (NYSE: BROS) compares to the old stalwart, Starbucks (NASDAQ: SBUX). There is an interesting contrast between these two companies, as Starbucks struggles to figure out aglobal marketwhere people are a little less inclined to splurge on coffee, and Dutch Bros. tries to find the balance between growth and creating earnings value for shareholders.
Growth
If you're talking about pure growth, this one slides pretty hard to Dutch Bros. The coffee chain has reported double-digit annual revenue growth repeatedly over the last five years. That growth has never dipped below 30%. In comparison, the last time Starbucks achieved annual growth over 20% was in 2021. Since then, things have slowed down for the coffee giant.
In the second quarter of this year, Dutch Bros. continued its trend of impressive expansion. Quarterly revenue reached $325 million, which represents a 30% increase year over year. Full-year total revenues are forecasted to be between $1.215 billion and $1.230 billion. This would mark around a 27% increase from 2023's full-year revenues.
In comparison, Starbucks reported a 1% decline in year-over-year revenues in its most recent quarter ended June 30, compared to a consolidated net revenue gain of 12% in fiscal third-quarter 2023. Two areas of major concern here are U.S. sales and China sales.
U.S. traffic declined 6% in the quarter. In China, the company's second largest market after the United States, same-store sales fell 14%. Overall, the company pointed to weaker global demand, a "challenging consumer environment" according to the company's CEO, and tougher competition.
Valuation
The catch here is that Dutch Bros. doesn't really have a whole lot of earnings value for shareholders relative to its stock price, despite the fact that it made some real efforts to increase earnings this year. The coffee chain finished the first six months of the year with $0.21 per diluted share, compared to a loss of $0.02 per share the year prior. Analyst estimates are calling for the company to finish the year with $0.40 per share, which would give the stock a forward price-to-earnings (P/E) ratio of 86 times earnings.
Starbucks, while technically experiencing some weak earnings this year, is still more value-oriented than Dutch Bros. Analyst estimates are calling for 2024 earnings of $3.56 per share. That would give Starbucks a forward valuation of 27 times earnings. That's clearly a much more reasonable pricing than Dutch Bros.' premium of 86 times forward earnings.
The winner?
This comes down to the type of investment you want. I'm usually a more value-oriented guy, but it's hard to ignore what Dutch Bros. is achieving here. Since going public, the company is doing very well at scaling the business, and has just begun to convert that growth into more meaningful earnings for shareholders.
Starbucks offers you an established name that is more dividend- and earnings-focused, with an established store base. But the company seems to be facing more immediate headaches trying to drive sales in the U.S. and China. It's a situation that the new CEO will have to address. To me, the upside is a little lower for Starbucks right now. Perhaps pumpkin spice latte season will prove me wrong, but right now I think the right play is Dutch Bros.
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David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
