This Bullpen Name Is Taking a Spill, So Should We Make an Order?
Here's what it would take for us to pour this stock into the Portfolio.
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*Shares of Dutch Bros. are getting punished despite earnings beat.
*We see a sizable short interest in BROS, so we’ll want that to percolate.
*If BROS becomes oversold, it may lead us to pick up some shares.
This morning we are seeing Bullpen resident Dutch Bros BROS crater more than 20% following last night’s quarterly earnings beat. Earnings per share topped expectations and management nudged its 2024 outlook higher to $1.215 billion to $1.230 billion compared to $965.8 million in 2023. Pretty impressive compared to the market’s current expectation for Starbucks SBUX to grow its 2024 revenue by just 1.5% this year.
The rub in the report, however, was that lifted guidance only matched the consensus revenue forecast and management is now calling for new store growth at the lower end of its prior guidance of 150-165 units. That’s still a healthy clip compared to the 912 locations across 18 states exiting the quarter and Dutch Bros should see continued revenue lift from not only those locations, but the continued roll out of mobile orders.
So the question is: What does this mean for our portfolio?
After all, we’ve been opportunistic so far this week, using the market’s moments of extreme volatility to add some shares of our existing positions and start fresh ones in Meta Platforms META and Eaton Corp. ETN.
With the market mood still in extreme fear this morning, odds are we are going to see an overreaction in BROS shares today. So, it's tempting to call up BROS shares from the Bullpen. But we recognize there is a hefty degree of short interest in the shares at around 9.15 million shares per New York Stock Exchange data. That equates to about 3.65 days to cover. Even though we are seeing only modest price target cuts for BROS this morning, we’ll want most of that pressure to come out of the shares. It could pull BROS into oversold territory (with the Relative Strength Index less than 30), and should that occur, we may be inclined to start building a position in Dutch Bros.
At the time of publication, the Portfolio was long META, ETN.
