The economy is giving off mixed signals. Earlier this month, the CEO of Target said consumers were “buying less stuff,” but despite that sentiment, the Bureau of Economic Analysis said consumer spending rose 0.3% in September.
Meanwhile, the S&P 500 experienced its biggest week of the year at the start of November with a 5.9% gain. But even in a sluggish economy, the strongest companies are still able to connect with their customers, especially those seeking life’s little luxuries.
That’s why Chipotle Mexican Grill (NYSE: CMG) and Dutch Bros (NYSE: BROS) stand out from the recent rally.
No doubt, rising food and restaurant prices have hurt cash-strapped consumers, who are now making fewer restaurant visits. However, Chipotle has positioned itself as a go-to option for a healthy meal at a reasonable price. Customers can still buy an entrée at Chipotle for less than $10 before sales tax while getting fresh, non-frozen ingredients.
Shareholders in the restaurant stock should continue to find its growth prospects appetizing. In the third quarter, Chipotle opened 62 new locations, taking the restaurant count to approximately 3,300. That’s still less than half of management’s long-term goal of 7,000 locations.
Shareholders shouldn’t forget about the opportunity in Canada and Europe too — with approximately 65 non-U.S. locations, Chipotle has barely scratched the surface of its international growth potential.
For the nine months ended Sept. 30, revenue reached $7.4 billion, up 14% year over year. Costs and expenses grew just 10%, allowing Chipotle to report net income growth of 40% for the period to $947 million.
Admittedly, with the stock up just over 50% year to date, it has already made significant gains. Also, its forward P/E ratio of 40 still represents a premium to many of its restaurant peers.
However, Chipotle’s strong track record and growth potential mean the stock’s market-beating run is far from over.
Coffee is a daily habit for millions of people, and in 16 states, that could mean a visit to Dutch Bros. This rapidly expanding coffee chain has a unique business model and ambitious expansion plans fueling its growth story.
Unlike rival Starbucks, Dutch Bros utilizes drive-thru locations only, meaning it does not have to maintain indoor seating. Also, since the beverages are the only reason to visit Dutch Bros, the company has no choice but to differentiate itself with a better product.
Dutch Bros offers a wide variety of beverages besides coffees, including teas, lemonades, smoothies, and energy drinks. However, its specialty is the Dutch Classics, beverages with a base of espresso and half and half.
In the third quarter alone, Dutch Bros added 39 locations, taking the total to almost 800. Consequently, in the first three quarters of 2023, this expansion pushed revenue 32% higher from year-ago levels with the top line sitting at $712 million.
Also, the coffee stock turned profitable in 2023. It reported year-to-date net income of $14 million as of the third quarter.
Although the stock has rallied in recent weeks, it’s down 5% for the year. Dutch Bros’ price-to-sales (P/S) ratio of 1.7 is near its all-time low and close to half the valuation of Starbucks. With a long runway of both top and bottom-line growth, Dutch Bros is an attractively priced growth stock with multibagger potential.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Starbucks, and Target. The Motley Fool has a disclosure policy.
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