Key Points

  • Starbucks' turnaround is gaining traction even as its higher costs put pressure on profits.

  • Dutch Bros fast revenue growth and improving profitability show a scalable model.

  • Relative to earnings growth expectations, Dutch Bros looks cheaper.

  • 10 stocks we like better than Dutch Bros ›

Starbucks (NASDAQ: SBUX) stock is up 25% year to date, reflecting the business's improving momentum this year under CEO Brian Niccol, who took over in 2024. Meanwhile, Dutch Bros (NYSE: BROS) stock has fallen 18% as of this writing. That gap stands out, especially because Dutch Bros remains the faster-growing coffee business in terms of revenue and profits.

The underperformance doesn't look justified and could be an opportunity for investors, since Dutch Bros appears to offer a longer growth runway.

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Starbucks is executing a solid comeback

Starbucks' trailing-12-month revenues grew by 4.5% year over year in its fiscal third quarter, which ended June 28, but higher costs have weighed on profitability. Trailing-12-month operating income grew by just 2.5% as the company absorbed turnaround-related costs such as investments to improve service, as well as the impact of higher coffee prices.

Still, Niccol's strategy appears to be working. Global comparable-store sales have accelerated for four straight quarters, and climbed 7.9% year over year in fiscal Q3.

Those improvements are being driven by higher visit frequency. The company has the benefit of a massive loyal customer base, as evidenced by its 35 million-plus Starbucks Rewards members. Management said brand affinity, customer consideration, and purchase intent are at five-year highs.

Dutch Bros continues to perform at a high level

Dutch Bros' trailing-12-month revenue grew 29% year over year. Even better, operating profit rose 35%, showing the company is scaling profitably as it opens more shops across the U.S.

It just delivered its eighth straight quarter of transaction growth and its 13th consecutive quarter of positive comparable-store sales growth. Company-operated same-shop sales rose 8.3% year over year, with systemwide same-shop sales up 5.8%.

Dutch Bros trades at a lower valuation relative to growth

Dutch Bros shares trade at a forward price-to-earnings ratio of 52, which is high, but that valuation is supported by analysts' consensus long-term earnings growth estimate of 32% annually.

Starbucks trades at a forward P/E of 41, but analysts expect its earnings to grow by only 19% annually. That gives Dutch Bros the lower price/earnings-to-growth (PEG) ratio of 1.63, compared to Starbucks' 2.15. The PEG comparison shows that investors are getting more value for Dutch Bros' higher expected earnings growth rate than for Starbucks.

A lower PEG ratio sets up the potential for stronger long-term shareholder returns. Dutch Bros currently has 1,225 shops open, but it believes its addressable market can support 7,000 shops. Management believes it is on a path to expand to 2,029 locations by 2029.

Both are solid businesses that can deliver returns. But Dutch Bros' 18% share price decline this year doesn't appear to match either the company's fundamentals or the growth it has ahead.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Dutch Bros and Starbucks. The Motley Fool has a disclosure policy.