Neither stock was a big winner this year, but Wall Street still had a clear favorite when it comes to Starbucks (SBUX 0.47%) and Dutch Bros (BROS -1.04%). The coffee titan lost 2% of its value through mid-December even as the broader market rallied by 24%. Meanwhile, Dutch Bros has gained 5% year to date.
There are more differences between these companies than just the huge gap in their relative sales bases. Let's look at why an investor might choose one of these stocks over the other right now.
Bigger is better
Dutch Bros maintains fewer than 1,000 locations across 16 states, giving it a huge potential growth runway for 2024 and beyond. Management sees room for at least 4,000 stores over time, in fact. Executives are backing up that bright forecast with serious investments, too. Dutch Bros plans to launch 130 new locations in fiscal 2023, along with a major roasting facility opening in 2024.
Yet Starbucks stock delivers exposure to solid growth possibilities in addition to the stability that comes with its massive global sales footprint. Revenue is expanding at a double-digit rate today, and while its 11% uptick is smaller than Dutch Bros' latest 33% spike, keep in mind that Starbucks boosted revenue by $800 million. Dutch Bros, in contrast, added just $67 million to its Q3 sales base.
Starbucks also has its tiny rival beat when it comes to growth at existing locations. Comparable-store sales were up 8% in the core U.S. market last quarter, or twice Dutch Bros' result.
Starbucks has robust cash flow
Starbucks also looks much more attractive from a finances standpoint. It long ago reached -- and then blew past -- the point where it could fund its own growth. Annual cash flow has now fully rebounded from the post-pandemic slowdown and is back to $6 billion.
Conversely, Dutch Bros barely generates positive cash flow. That's why management made two moves this past quarter to raise cash. It upgraded the company's access to credit and issued another stock offering.
These moves put Dutch Bros in a good position to invest in building out its store footprint. But they underscore that it will likely be years before the company can be expected to fund itself, let alone spend significant cash on stock buybacks or dividend payments. If you're a fan of direct shareholder returns, Starbucks is your better bet.
The better value
The good news is that both stocks are available at a discount today compared to their early 2023 prices. You can own Starbucks for just over 3 times annual sales, down from more than 5 at the pandemic peak. Dutch Bros' valuation has slipped from its IPO high of over 7 times sales to below 2 heading into 2024.
So if you're at all risk-averse, Starbucks is the clear winner in this investing matchup. That title might change hands if Dutch Bros gets to the point where it is growing sales at existing locations at an industry-leading rate.
Success here would add support to management's goal of quadrupling the store base over the next several years. Until you see accelerating comps, though, keep Dutch Bros on your watchlist for 2024.
