Finding emerging restaurant brands early in their national expansion can be one of the simplest ways to build long-term wealth. An early investment in Starbucks or Chipotle Mexican Grill would have multiplied into a large sum.
Dutch Bros (BROS +4.17%) and Cava Group (CAVA -2.31%) have the potential to build similar wealth for investors over the next 20 years. Both companies are in the early stages of expanding across the U.S., making now a good time to start investing in these emerging brands.
Image source: Dutch Bros.
Dutch Bros
The specialty beverage category has grown in popularity in recent years, yet Dutch Bros is gaining market share and remains a promising stock to buy and hold. It operates exclusively through a drive-thru format, with shops offering a wide range of flavorful beverages, including energy drinks, refreshers, tea, lemonade, soda, and coffee.
Today’s Change
(4.17%) $2.08
Current Price
$51.95
Key Data Points
Market Cap
Day’s Range
$50.34 – $52.27
52wk Range
$44.58 – $74.65
Volume
4.2M
Avg Vol
3.6M
Gross Margin
24.82%
Dutch Bros goes the extra mile to build connections with customers using free giveaways and friendly service. That’s reflected in consistent growth: Revenue grew 32% year over year in the second quarter, with systemwide same-store sales up 5.8%. This is typical of quarterly results over the last few years.
Another quality to like about the company is its culture. Dutch Bros promotes leaders from within. There’s a deep bench of 525 candidates to become new operators, and these candidates have an average tenure in the company of nearly eight years. This cultivates a passionate team for the brand and operational consistency.
Any restaurant business can grow sales by simply opening more stores, but that’s another reason to like Dutch Bros: It is profitably expanding. Its margin hit an inflection point in mid-2023, with the profit margin improving from 0% three years ago to 7% on a trailing-12-month basis. Expanding margins should continue to drive strong earnings growth.
As of June 30, there are 1,225 shops open systemwide, with management attempting to more than triple the base in three years. The stock trades at 3.4 times trailing sales — a reasonable multiple for a restaurant growth stock with a long runway ahead.
Image source: Cava.
Cava Group
There’s a huge opening in the fast-casual restaurant market for Mediterranean-style eating. Cava is addressing that opportunity and blazing a growth trail that could build wealth for its shareholders.
Cava offers a concept similar to Chipotle’s, with a focus on speed, quality, and customization. But instead of burritos and guacamole, it’s winning over customers with pitas and feta cheese. Second-quarter revenue grew 31% year over year, with same-restaurant sales up a solid 9%.
Recent results represent a noticeable acceleration from the low-single-digit comparable sales a year ago, attributable to its focus on value, hospitality, and culinary innovation.
Today’s Change
(-2.31%) $-1.70
Current Price
$71.93
Key Data Points
Market Cap
Day’s Range
$71.74 – $74.47
52wk Range
$43.41 – $98.79
Volume
3.4M
Avg Vol
3.3M
Gross Margin
18.63%
There appears to be ample room to expand over the next 20 years. Cava has fewer than 500 locations — significantly less than Chipotle’s 4,200+. It just opened 17 net new restaurants last quarter, expanding its base by 19% over the year-ago quarter.
Importantly, Cava’s restaurants are highly profitable; its restaurant-level profit margin was 25.7% last quarter. Overall, its profit margin is trending upward, currently at 4.8% on a trailing basis, as the company continues to expand.
Cava should continue to report strong financials, considering it’s still in the process of building national brand awareness. New restaurants continue to outperform management’s expectations, a sign of tremendous pent-up demand as word-of-mouth marketing spreads.
Investors are optimistic about the company’s long-term prospects, given the high price-to-sales multiple of 6.2. That’s expensive. But if you buy a small position now, patiently hold it, and perhaps add to it over time, you’re likely to find it a rewarding investment that compounds in value as the company expands nationwide.
