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If you had to go by 2024 first-quarter earnings, there wouldn’t be much of a match here. Dutch Bros (NYSE: BROS) had an absolutely terrific quarter, while Starbucks (NASDAQ: SBUX) was down in the dumps.

But there is so much more to a company than one quarter’s worth of earnings. When you put it all together, how do these two coffee shop chains stack up against each other? Let’s find out.

The case for Starbucks: Evolving into its next phase

Starbucks is the largest coffee chain in the world with nearly 39,000 stores, and if its expansion plans play out, it could become the largest restaurant chain in the world over the next few years.

It has incredible brand and pricing power, a proven track record, and a demonstrated model for getting new stores up and running quickly and profitably.

The fiscal 2024 second quarter (ended March 31) was unusually awful for the coffee king. Revenue decreased 2% from last year, and comparable sales (comps) were down 4%. Operating margin narrowed by 1.5 points to 12.8%, and earnings per share (EPS) were down 14% from last year to $0.68.

Even worse, it’s facing challenges that you can’t simply chalk up to inflation. It’s already more expensive than most of its competition, including Dutch Bros and Luckin Coffee in China, which limits its ability to keep raising prices without turning away customers. It’s also losing ground to Luckin, which has nearly 18,600 stores as of the end of the first quarter, as compared with Starbucks’ almost 7,100 stores in the region. And it’s still in the process of becoming a more digital-first company with smaller, more agile stores that can meet today’s to-go environment.

Starbucks launched a reinvention strategy almost two years ago, and two years should be enough time to demonstrate progress. At the same time, with inflation, it makes sense that things get worse before they get better. The new plan addresses some of its problems, particularly the question of how it will change into a mobile and delivery center with speed and agility. Starbucks has successfully reinvented itself before, and it has no match globally.

Starbucks stock is down 28% over the past year, seriously underperforming the S&P 500 index. It’s trading at a cheap price-to-earnings ratio of 21, and it pays a dividend that yields 2.9%, more than double the S&P 500.

The case for Dutch Bros: Young and popular

Even though Dutch Bros’ concept and beverages aren’t all that different from Starbucks’, it offers a different draw for investors.

It operates only 876 stores as of the end of the first quarter, a minuscule percentage of Starbucks’ count. It’s been opening around 40 stores per quarter, which is slower than Starbucks but higher as an overall percentage of its count. That’s leading to high sales growth. It’s doing an excellent job of staying efficient and demonstrating profitability at scale, so while it’s not yet sustainably profitable, it’s heading in that direction.

In stark contrast to Starbucks, it reported excellent first-quarter results. Sales increased 39% year over year, and comps growth made a big comeback at 10%. This has been one of the main red flags for investors, so it’s a welcome update. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $24 million to $53 million, and it swung to positive net income of $16 million after a $9 million loss last year.

There are many factors working together toward this success. Customers really like its stores, which are focused on speed and a friendly and fun atmosphere. Beverages are customized and innovative, and “broistas” walk through drive-thrus for faster, personal service.

Dutch Bros is based in Oregon and has a heavy presence in California, but it’s been expanding across the country. It sees the opportunity to reach about 4,000 stores over the next few years. While still a drop in the bucket compared with Starbucks, that’s more than quadruple today’s store count. That’s not a growth goal Starbucks can reasonably achieve.

Is it a question of priority?

The question of which stock is a better buy often boils down to what kind of stock you’re looking for. If you’re looking for an established leader with reliable and growing passive income, Starbucks is your stock. It’s trading at a low price, making now an especially good time to buy in, and it’s likely to rebound and create shareholder value.

If you have some risk tolerance and are looking for a growth stock, you would want to choose Dutch Bros.

I would point out that valuation isn’t an exact science, because no two stocks are exactly the same, which makes comparisons tricky. So while Dutch Bros trades at a high forward one-year price-to-earnings ratio of 72 vs. 18 for Starbucks, they trade at the same price-to-sales ratio, even though Dutch Bros is growing sales much faster. That makes it look like a bargain today.

SBUX PS Ratio data by YCharts

I see the risk for Dutch Bros as low right now. It’s demonstrating that it can reach high comps growth and profits, and its model is working across regions. So I would choose Dutch Bros.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Luckin Coffee and Starbucks. The Motley Fool has a disclosure policy.

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