Identifying up-and-coming brands can be a profitable investment strategy. There are promising new businesses starting to gain the attention on Wall Street in the restaurant and athletic wear industries.
Dutch Bros (BROS 3.13%) and On Holding (ONON -0.76%) are reporting tremendous demand for their products, and it’s reflected in their share price performance, as both stocks roughly doubled in value over the past year.
Here’s why these stocks are poised to deliver monster returns for investors over the long term.
Image source: Getty Images.
1. Dutch Bros
Dutch Bros’ unique brand focusing on specialty beverages and friendly service is driving incredible growth. Finding new restaurant brands early in their growth journey can make rewarding stocks to hold for the long term, and this one is very promising.
Revenue has consistently grown around 30% year-over-year over the last few years. This is driven by a combination of single-digit same-shop sales growth at existing locations, with the balance driven by new Dutch Bros shops. It reported a 29% year-over-year revenue increase in the most recent quarter, and management plans to maintain a steady pace of expansion, with 160 new shop openings planned for 2025.
One thing that makes Dutch Bros an attractive investment is that the business has only just gotten started in tapping into opportunities to drive sales at existing locations. It is having success introducing new flavors to its coffee and energy-focused menu, with recent creations like cereal-flavored lattes and brownie batter mochas.
Management credited its new flavors for strengthening its brand and driving outstanding financial results in the quarter. There’s an infinite number of ways it can flavor and mix up its beverage menu to drive demand over the long term. This doesn’t even count its food testing at some locations to potentially expand the menu into new sales opportunities.
Dutch Bros just opened shop No. 1,000 in Orlando, Florida. It aims to have 2,029 shops open by 2,029. It should be able to expand to several thousand over the next decade and fuel multibagger returns for investors.
Image source: Getty Images.
2. On Holding
Discovering Nike stock in the 1980s would have delivered wealth-building returns. On Holding might give investors another chance. This up-and-coming footwear brand is growing sales at high rates and already achieving a higher profit margin than Nike.
On set a goal in 2024 to grow sales at an annualized rate of 26% through 2026, and it appears ahead of schedule. Sales surged 43% year-over-year in the most recent quarter. It is not only growing faster than other top athletic apparel brands, but its profit margin continues to climb. On is now converting more than 10% of its sales into profits, while Nike’s margin has fallen to the single digits on a trailing-12-month basis.
On’s improving profit margin indicates that it is not taking aggressive sales tactics, such as discounting merchandise, to grow sales. Consumers are paying premium prices for On’s advanced cushioning technology, which delivers a soft feel without hurting a runner’s ability to explode on takeoffs.
The company’s sales momentum also reflects that its Cloud shoes are starting to gain traction as an everyday sneaker. It is reaching millions of customers across 80 countries. A great sign of growing brand awareness is that apparel sales are starting to take off, growing 40% year-over-year last quarter.
With its annual sales closing in on $3 billion, the brand is gaining share in the athletic apparel industry, yet still small enough to deliver huge gains for patient shareholders. Management is focused on continuing to expand brand awareness, grow its online sales channel, and maintain healthy profitability. The strong demand for its product is pointing to excellent return prospects, as its stock performance already shows.
John Ballard has positions in Dutch Bros. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Dutch Bros and On Holding. The Motley Fool has a disclosure policy.