Dutch Bros. Coffee (NYSE: BROS) was first established in 1992 by two brothers from a Dutch descended family in the U.S. By the time of its IPO on September 15, it has grown from a singular coffee cart in their local town to over 470 shops across 11 states in the American West. 

Dutch Bros has a wide assortment of very colorful drinks which includes both iced and hot coffees -- there is even a rainbow-colored energy drink called 'Shark Attack'. But, aside from its fun, albeit potentially diabetes-inducing menu, we wondered if this real-life story of the 'American Dream' is a good investment? 

The bull case for Dutch Bros Coffee

Dutch Bros had a spectacular IPO and has become the largest public offering in Oregon's history, even larger than that of Nike and Columbus Sportswear. It raised around $484 million in its debut. 

Up until 2017, Dutch Bros was a franchised company. However, this practice stopped and now all 179 locations that have opened since then are company-owned. 56% of its locations are still franchises, however, each owner has a strong loyalty to Dutch Bros, having previously worked within the company itself. 

Customer loyalty is also a big draw for this stock. Its affordable prices and friendly coffee culture have created a large group of regular customers. Indeed, over 1.4 million customers used the new digital rewards program within one month of its release back in February. This loyalty particularly helped during the pandemic, as same-store sales grew at a rate of 2%, whereas many other coffee bands experienced a decline.

As for locations that have opened since 2018, they have a 16% compound annual growth rate (CAGR). Overall revenue has also expanded from $186 million in 2018 to $327.4 million in 2020 at a rate of 33%. For the first half of 2021, revenue came in at $228 million, which is on track for further growth in comparison to both 2019 and 2020.  

Dutch Bros just seems to keep getting bigger. Over the past month alone there have been announcements of multiple new locations in Utah County, East Bay, in Sanger, California, and potentially a new one in Sherman, Texas. This is a lot of new stores in the west. As the company grows bigger it will also begin expanding east, following an aggressive expansion strategy that is currently being put in place. Now that it is a public company, the chain will be focusing on building brand loyalty whilst it aims to have over 4,000 drive-through stores across the U.S.

The bear case for Dutch Bros. Coffee

Although Dutch Bros seems to be quite successful in the west of the country, it still needs to compete with the likes of big players in the java drink industry. Starbucks and Dunkin' are intimidating competition that have had years of not only national recognition but also global expansion. Until Dutch Bros can establish a foothold in the east of the U.S., it will not be able to compete fully with the larger nationwide players. 

Another aspect for investors to consider is the recent climate change issues that have affected coffee production in one of the world's largest coffee bean areas, Brazil. Crops have been affected by frost, causing coffee commodity prices to surge to their highest level in seven years. This, coupled with the current Colombian political unrest, could impact Dutch Bros' profits in the short term. However, this should not overly affect the company in the long run unless these problems continue.

So, is Dutch Bros a good buy? 

Dutch Bros Coffee is a hot new stock on the U.S. market, It could be a good buy with plenty of room for expansion as well as strong customer loyalty. It does have a long way to go before it becomes a true competitor to the likes of Starbucks and Dunkin', however, in the meantime this fun-loving coffee company is looking quite positive for the future.

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Quickfire Round: 

• Will Dutch Bros stock pay a dividend?

Dutch Bros has no current plans to pay a dividend. 

• Does Dutch Bros have a secret menu?

Yes! Its secret menu has multiple unique flavor combinations including the Double Rainbro or the Nutty Irishman.

• Who founded Dutch Bros? 

Dutch Bros Coffee was founded by brothers Travis and Dane Boersma.