Coffee Giants Tussle for Investors’ Favour – BROS, SBUX, LKNCY

Investors in the retail coffee market have witnessed divergent performance trajectories between coffee giants, as the stock prices of Dutch Bros (NYSE: BROS), Starbucks (NASDAQ: SBUX) and Luckin Coffee (LKNCY) have each taken on big moves in 2024.

While Dutch Bros stock has enjoyed a climb of 29% in its price, its competitors here have both seen big drops. Starbucks stock has seen a 21.75% drop in its value this year, whilst Luckin Coffee has dropped 20.76%. These are pretty wild swings on a relative basis, and it is clear there is only one winner from a price action perspective so far.

Dutch Bros, which operates primarily in the Western and Southern US, boasts 876 locations and harbours ambitious plans to escalate its presence to 4,000 stores over the next 10 to 15 years.

In contrast, the giant Starbucks commands a global footprint with 38,951 locations, and foresees expanding its reach to 55,000 stores by the end of 2030. Luckin Coffee also has also been hampered in some regard due to it's heavier store load, with more than 10,000 now open across the globe.

However, Dutch Bros faces challenges in achieving consistent profitability. The company reported a modest $16 million in net income in Q1 and relies on growth to improve its financial standings. On the other hand, Starbucks, with its entrenched brand recognition and robust profit margins, has encountered recent headwinds, including a 4% drop in same-store sales in the fiscal second quarter of 2024 and a subsequent downgrading of its full-year revenue forecast due to diminishing foot traffic.

The assessment of future prospects as suggested by market valuations paints a clear picture. With a forward price-to-earnings (P/E) ratio of 21, Starbucks presents itself as a mature but currently stuttering player. Meanwhile, Dutch Bros carries a significantly higher forward P/E multiple of 116, signalling that investors hold lofty growth expectations for the company.

Brand recognition and established market presence play pivotal roles in the coffee industry. Starbucks, a household name, continues to grapple with fluctuations in sales and seeks to navigate the challenges posed by shifting consumer habits. In contrast, Dutch Bros is in the crucial phase of establishing its brand and scaling its operations, endeavors that are critical for its long-term profitability and market position.

As investors weigh their options between these distinct stories in the coffee sector, the vibrancy of Dutch Bros' growth narrative contrasts with the current narrative around Starbucks, or Luckin.