BROS is a buy due to strong growth and undervaluation; intrinsic value is ~45% above current price.

Dutch Bros is a company I've been watching more closely lately because I've seen an opportunity here. In the latest quarter, Dutch Bros reported $551 million in revenue, which is up 32% compared to the same quarter last year.

So, let's take a closer look to see if this is a buying opportunity already. So, looking at the business longer term, the growth trajectory has been excellent. The company has scaled to $1.9 billion in revenue over the trailing 12-month period. That's up from around $250 million in 2021.

And 30% revenue growth in a period where there's been significant macroeconomic headwind, I think is excellent for a business like this in this category.

So, I like that the business is already cash flow positive, um but I'm a little concerned that the increases in cash flow from operations to sales ratio have stalled. At 19.4%, it's about the same level it was at a couple of years ago.

Despite that, the business has grown significantly since then.

Perhaps this is where the macroeconomic headwinds are impacting the business most significantly, is not in top line growth, but in improving margins. Now, they were able to improve their operating profit margin from around 5% in 2024 to about 9.7% over the trailing 12-month period.

I also like that Dutch Bros is improving its returns on invested capital. This is something you have to be good at if you're building a coffee shop business. If you're building a coffee business with new locations being added, each new location requires significant investment, right?

Tens of millions, if not hundreds of millions of dollars, depending on the size and scope and location of the restaurant or coffee shop. And so you've got to be good at finding these locations and creating these locations, having a standardized process for location creation, and being able to replicate that throughout the regions where you want to operate.

And already Dutch Bros is demonstrating skill in this regard. Even in its smaller scale, it's already positive in terms of returns on invested capital at 6.6%.

And valuation is more attractive than it's ever been for Dutch Bros, and I've been following this for a couple of years now. Dutch Bros is now selling at a forward price to earnings of 33 and 1/2.

This is the cheapest it's been according to this metric going back all the way to 2023.

So the valuation is attractive. The business is showing investors early signs of a successful operation and scaling up to an opportunity.

Remember, people spend over $400 a year purchasing coffee. So it's a relatively medium-sized market opportunity. It's not large. It's not small. It's a medium-sized opportunity that Dutch Bros is growing to capture.

The valuation also looks attractive when I measure it using a discounted cash flow valuation approach. At $64 per share, the intrinsic value or fair value I calculated is roughly 45% above the current market price of $44.

So, I see a significant upside here for Dutch Bros stock. So, to answer the question I posed in the headline, I do see this as a buying opportunity. I have a medium conviction level on this ranking, and this isn't above average risk stock.

So, this should be considered with investors with a relatively medium to high level of risk tolerance.