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Dutch Bros Stock is a Momentum Reversion Play

Wednesday, January 26, 2022 | Jea Yu
Dutch Bros Stock is a Momentum Reversion PlayDrive-thru coffee and beverage operator Dutch Bros (NASDAQ: BROS) stock has fallen nearly (-50%) since reaching its post-IPOs highs in October 2021. The Company has developed an almost cult-like following since opening in 1992. The drive-thru enables contactless service which allowed it to continue to grow even during the pandemic. The first earnings report as a publicly traded company for Q3 2021 showed impressive top line growth of 50% while raising its Q4 2021 guidance. While its coffee and expresso products are the mainstay, the Company also serves extremely popular beverages including Blue Rebel energy drinks, lemonade, tea, and smoothies. The drive-thru shops operate in 11 states which leaves much room for expansion and the Company plans to open at least 112 shops in 2022. Prudent investors seeking exposure in the coffee and beverage drive-thru segment can watch for opportunistic pullback levels in newly minted shares of Dutch Bros.

Q3 Fiscal 2021 Earnings Release

On Nov. 10, 2021, Dutch Bros released its fiscal third-quarter 2021 results for the quarter ending September 2021. The Company reported an adjusted earnings-per-share (EPS) profit of $0.23, excluding non-recurring items versus consensus analyst estimates for $0.08, beating estimates by $0.15. Revenues rose 49.8% year-over-year (YOY) to $129.8 million, beating analyst estimates for $125.2 million. System same store sales rose 7.3% in Q3 and 10.7% on a two-year basis.  


Upside Q4 2021 Guidance

Dutch Bros issued upside guidance for fiscal Q4 2021 with revenues coming in between $125 million to $128 million versus $121.40 million consensus analyst estimates. The Company plans to open at least 112 new total system shops in 2022.

Conference Call Takeaways

CEO Joth Ricci set the tone, “We believe Dutch Bros is uniquely positioned within our industry to not only reach our 10-year to 15-year goal of serving great beverages at 4,000 locations across the U.S., but to also continue developing the people pipeline that enables that unit growth and supports communities and investments. A little background for those of you who aren’t familiar with our Company, Dutch Bros has been serving high quality handcrafted drinks across the western U.S. for nearly 30-years. In 1992 Dane and Travis Boersma started Dutch Bros with a double head espresso machine and a pushcart in downtown Grants Pass Oregon. Today, Trav plays a daily visionary leadership role of Dutch Bros and serves as our executive chairman. While, Dutch Bros has already recognized as one of the fastest growing brands in the United States Food Service and restaurant and restaurant industry by location count. We are still in the early stages of a long-term growth story and believe Dutch Bros has enormous potential. Since 2015, shop count has nearly doubled to more than 500 drive-through shops across 11 states. This year, we enter two new states, Texas, and Oklahoma. Numbers have shown the brand translates well across regions and we look forward to our continued expansion. In fact, our average unit volume in the most recent states we entered are well above our system average. And that is in spite of very little marketing in those markets. While roughly half of our shops today are managed by a core group of trusted franchisees, who may continue to open source in their existing markets. The vast majority of future growth for Dutch Bros will be through Company owned shops. Several years-ago, we made the decision to stop offering traditional franchise opportunities, we have instead focused on working with our field leadership and existing franchise partners to co-develop a people pipeline of potential operators for Company operated shops.”

He detailed, “We believe Dutch Bros is uniquely positioned within our industry to not only reach our 10-year to 15-year goal of serving great beverages at 4,000 locations across the U.S., but to also continue developing the people pipeline that enables that unit growth and supports communities and investments. A little background for those of you who aren’t familiar with our Company, Dutch Bros has been serving high quality handcrafted drinks across the western U.S. for nearly 30-years. In 1992 Dane and Travis Boersma started Dutch Bros with a double head espresso machine and a pushcart in downtown Grants Pass Oregon. Today Trav plays a daily visionary leadership role of Dutch Bros and serves as our executive chairman. While Dutch Bros has already recognized as one of the fastest growing brands in the United States Food Service and restaurant and restaurant industry by location count. We are still in the early stages of a long-term growth story and believe Dutch Bros has enormous potential. Since 2015, shop count has nearly doubled to more than 500 drive-through shops across 11 states. This year, we enter two new states, Texas and Oklahoma. Numbers have shown the brand translates well across regions and we look forward to our continued expansion. In fact, our average unit volume in the most recent states we entered are well above our system average. And that is in spite of very little marketing in those markets. While roughly half of our shops today are managed by a core group of trusted franchisees, who may continue to open source in their existing markets. The vast majority of future growth for Dutch Bros will be through Company owned shops. Several years-ago, we made the decision to stop offering traditional franchise opportunities, we have instead focused on working with our field leadership and existing franchise partners to co-develop a people pipeline of potential operators for Company operated shops.”

Dutch Bros Stock is a Momentum Reversion Play

BROS Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for BROS stock. The weekly rifle chart peaked sharply at the $81.47 Fibonacci (fib) level. The weekly market structure high (MSH) sell triggered on the breakdown below $60.61. The weekly downtrend has a falling 5-period moving average (MA) resistance near the $47.08 fib with a flat 15-period MA at $54.59. The weekly stochastic and Bollinger Bands (BBs) are still developing and will take a few more months to materialize. The daily rifle chart formed an inverse pup breakdown with a falling 5-period MA at $42.78 followed by the 15-period MA at $46.51 with lower daily BBs at $37.80. The weekly market structure low (MSL) buy triggers on a breakout above $52.43. Prudent investors can watch for opportunistic  pullback levels at the $39.54 fib, $38.02 fib, $35.88 fib, $32.42 fib, and the $29.97 fib level. Upside trajectories range from the $52.99 fib up towards the $71.12 fib level.   

 


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