A Bull Market Is Coming: 1 Stock That Could Soar Up to 78% in 2024, According to Wall Street

Is a bull market coming? As we head towards the end of the year, the market has clearly moved forward. It is worth remembering that a bear market is always followed by a bull market. And as that period approaches, it’s a good time to buy undervalued stocks. Stocks with great fundamentals at low valuations are likely to soar in a bull market, and identifying them now can give you the opportunity to buy them before they take the best profits.

Wall Street Is Identifying Coffee Chains Dutch Brothers (bros 0.40%) As an excellent candidate for a comeback in 2024. Should you follow that lead?

A coffee house with a unique feel

Starbucks As the world’s largest coffee shop chain, it may be in an unrivaled position, but given its unconventional model, there is an opportunity for new coffee chains to offer a different experience and gain market share.

Enter Dutch Bros. Not everyone wants the same type of coffee, and Dutch Bros has a unique culture with a differentiated model that resonates with millions of fans. As of the end of the third quarter, Dutch Bros operates 794 stores, of which 510 are directly managed and 284 are franchise stores.

Dutch Bros plans to open 4,000 stores, giving it plenty of runway over the next few years. Approximately 150 new stores are opened each year, and these new stores add significant revenue to overall sales, which is why Dutch Bros is able to achieve strong growth quarter after quarter. Third quarter sales increased 33% compared to the same period last year.

However, the counterpoint to this is that same-store sales (comps) are not very good. It only grew by 4% in the third quarter of 2023, which is low for a young company. Management says that’s at least partly the result of a fortification strategy of opening multiple stores in one location to increase brand awareness. This results in more revenue overall but lower per-store growth in the short term.

This is also a result of people spending less on additional products such as premium coffee at a time when inflation is making every penny count. This is an external headwind, and may already be starting to ease as inflation begins to ease. Comp revenue growth of 4% is an improvement over 1.7% last year and 3.8% last quarter. But this is a far cry from the roughly 10% it was before high inflation.

The pressure is easing and momentum is building.

Inflation trends in 2024 will be a big factor in determining Dutch Bros’ performance. The coffee chain has been raising prices to combat the impact of inflation, which helped boost profits in the third quarter and accounted for much of the increase in contribution margin, which rose to 31% from 26% last year. this year. This also contributed to increased sales, particularly same-store sales.

Dutch Bros recently hired an outsider to replace founder and CEO Joth Ricci, who is stepping down. This is the right move as the company grows from a small coffee shop chain to a true player in the industry. There are a lot of growing pains right now as the company figures out how to scale profitably in an inflationary environment. While new management introduces some additional volatility, selecting an experienced executive to lead the next phase of growth is certainly the right move.

How high can Dutch Bros stock go?

Dutch Bros stock has lagged the recent S&P 500 rally and is down 4% in 2023. At this price, it trades for 1.7 times trailing 12-month sales, which is cheap for a stock generating double-digit earnings. growth.

But Wall Street has a good year ahead for stocks. The average Wall Street analyst consensus is for a 20% upside over the next 12 to 18 months, with the top price target 78% higher than where it is today.

Risk-tolerant investors may be interested in following Wall Street’s lead and taking small positions. If we enter a new bull market, investors are likely to become more enthusiastic about growth stocks, and Dutch Bros stock could surge significantly. But most investors should take a wait-and-see approach for now.