Warren Buffett makes headlines every time he buys or sells a stock. Recently his holding company, Berkshire Hathawayhas added two new shares to its share portfolio: Pool company And Domino’s Pizza.
This is the first time that Buffett has taken a stake in the world’s largest pizza chain, and it’s not a surprising choice. Domino’s is a pretty classic Buffett pick because of its global brand name, industry dominance, dividend and resilience as a budget eatery. But it’s also a mature company with steady, slow growth: revenue rose 5.1% in the third quarter, with a 3% increase in comparable sales.
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If you invest like Buffett, Domino’s could be a candidate for you. But not every individual investor should invest like Buffett. He runs a holding company and answers to shareholders, and his goals are different than those of the average investor.
If you have a long-term horizon and some risk tolerance, you may be interested in growth stocks that don’t fit Buffett’s approach. Not all of them are super-risky tech bets, and many of them offer incredible growth opportunities without significantly raising the stakes. To consider Dutch brothers(NYSE: BROS)a relatively young coffee chain that shows serious growth and has enormous potential.
Dutch Bros is just like any other coffee shop chain and serves all kinds of customized coffee drinks. But it has developed a distinct brand and identity and attracted a loyal fan base. It focuses on speed and customer service, and the goal is to create an atmosphere of warmth and fun.
Although the first Dutch Bros store has been around for 30 years, the company only started rolling out as a national chain a few years ago. It went public in 2021 with about 500 stores, and three years later it has 950 stores in 18 US states and is still growing.
The response has been positive and sales have grown dramatically. Sales rose 28% year over year in the third quarter, and same-store sales rose 2.7%. Management noted that same-store transaction growth was the highest in two years. That’s important because it means people are buying more, and same-store sales growth doesn’t just come from price increases. It is a sign of viability and growth potential.
Companies in a high growth phase are often unprofitable because they spend more than they earn to build a strong foundation. Dutch Bros has been profitable for several quarters, including the last three. Net income rose from $13.4 million to $21.7 million in the third quarter.
Dutch Bros recently became cash flow positive, which is a welcome update. So far it has been pouring money into store openings, and management says it now feels it is entering a new phase where it can fully fund its growth.
Management is growing purposefully to maintain a healthy financial profile, and it’s working. The company originally set a target of 150 to 165 stores by 2024, but in restructuring its real estate plans, that guidance was reduced to closer to 150 stores. That’s short-term pain for long-term gain. Although the market sent Dutch Bros lower after that announcement a few months ago, the market immediately bounced back after solid third-quarter results.
Now that it has an improved real estate plan, management expects to open 160 new stores in 2025 and even more in 2026. It sees opportunities for 4,000 stores in the next 10 to 15 years. Those new stores alone offer incredible growth opportunities, and together with same-store sales growth, Dutch Bros has enormous potential.
The company recently introduced mobile ordering and payments in its stores, and that could be a game changer for short-term growth that supports long-term growth. It also recently changed its executive team to make room for an experienced team to take it to the next level, and the new team is doing its job.
Dutch Bros may not end up in Buffett’s portfolio just yet, but it’s a top candidate for any investor looking for strong growth stocks.
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in Berkshire Hathaway and Domino’s Pizza. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
Warren Buffett Just Made a Big Bet on Domino’s Pizza, But This Restaurant Chain Is Growing Much Faster was originally published by The Motley Fool
