Finance
Billionaires are buying up the shares of this coffee chain instead
Starbucks made big news last week with the poaching of Chipotle Mexican Grill‘s superstar CEO Brian Niccol. Shares of Starbucks shot up more than 20% after the announcement, and it was a shot of caffeine the coffee king desperately needed.
Investors are confident in Niccol’s ability to return Starbucks to growth, but that is a bit premature. He doesn’t start until September, and it will be at least a few quarters before he can show results from the new changes he’s implementing.
But there’s another coffee chain catching the attention of billionaire investors, and that’s newbie stocks Dutch Brothers (NYSE: BROS). Let’s see who’s buying and whether you should follow their lead.
Billionaires bet on cheap coffee
Asset managers with at least $100 million in assets need assets submit a 13F form with the Securities and Exchange Commission (SEC) quarterly, detailing their transactions. Investors are always on the lookout for the moves billionaire investors are making, and Warren Buffett’s 13F filing, the most recent of which was released last week, is making headlines.
But there are plenty of other closely watched billionaire-run companies, and several prominent companies have recently purchased shares of Dutch Bros. Some of these include:
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Larry Fink from Blackrock: increased position by 177%.
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Steven A. Cohen of Point72 Asset Management: position increased by 90%.
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Paul Tudor Jones of Tudor Investments: position up 82%.
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Steven Schonfeld of Schonfeld Strategic Advisors: started a new position.
It’s not just the coffee that’s hot
What’s so exciting about Dutch Bros? A lot actually. Don’t be confused by the Dutch name; it is the modern version of the American coffee shop, with a down-to-earth, homely atmosphere. The culture is friendly and community-oriented, and the service is customer-oriented and fast. In many ways, it’s the opposite of Starbucks’ premium, sophisticated, urban vibe, and this vibe resonates with millions of Americans lucky enough to be near a Dutch Bros store.
The most important part of a viable business is having a beloved product, so Dutch Bros checks that box. Then it needs a solid management team that can turn it into a scalable company, and after initial success with its founder-led team, it has hired an entirely new C-suite to take it to the next level.
So far, so good. Revenue increased 30% year-on-year in the second quarter of 2024, driven by new store growth and a 4.1% increase in revenue. sales in the same store. The company’s operated store contribution margin continues to grow, up 0.5 points from last year to 30.8%.
Last year was still a back-and-forth between losses and positive profits, but the second quarter in a row was positive net income, which rose from $9.7 million to $22.2 million.
Close, but not flawless
There has been some pressure at Dutch Bros, but the company also operates in a precarious environment. It does benefit from lower prices than Starbucks, because people who want to spend on coffee may opt for the cheaper alternative. But overall, if consumers are careful with their spending, they may reconsider the need for a customized beverage altogether.
Because Dutch Bros opens new stores so quickly, it has the advantage that it can include new stores in sales growth. Comparable sales growth has slowed, but is still better than a year ago. It seems to be doing quite well given the external headwinds, but the operating environment makes it harder to distinguish what comes from the business and what comes from external factors.
Yes, I would follow the billionaires to Dutch Bros
I often remind investors that billionaire asset managers often invest billions of dollars in their hedge funds, and their trades take that into account. As part of their job, they must maximize short-term profits, so their strategies differ fundamentally from those of the average individual investor.
However, it appears that Dutch Bros could be a fantastic long-term investment for the average investor as well. These billionaires all bought Dutch Bros in the first quarter, and they have since fallen based on near-term restaurant spending prospects. I wouldn’t be surprised if many of them continued to spend on Dutch Bros stock at the new, lower price lately, and if long-term investors with at least some risk appetite felt comfortable following these billionaires into a position in Dutch Bros shares. .
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Dutch Bros and recommends the following options: Short September 2024 puts $52 on Chipotle Mexican Grill. The Motley Fool has one disclosure policy.
Forget Starbucks: Billionaires are buying up this coffee chain stock instead was originally published by The Motley Fool
