With massive tech stocks, particularly those with exposure to artificial intelligence, seemingly getting all the attention these days, investors might be wondering if there are potential opportunities to buy businesses that fly under the radar. Dutch Bros (BROS 0.92%) is a mid-cap stock, worth $5.4 billion as of this writing, that could be worthy of consideration.

The coffee stock currently trades 54% off its peak price, but it has climbed 40% in the past 12 months. Does Dutch Bros have what it takes to beat the S&P 500 between now and 2030? My outlook might surprise you.

Dutch Bros’ huge potential

Dutch Bros, which operates what are mainly drive-through coffee houses across the U.S., is gaining attention because of its huge growth potential. As of June 30, the business had 912 locations, up 21% year over year. The vast majority of these are company-operated, while about one-third are franchised.

Management has big plans for the company’s future. They have set an explicit target of reaching 4,000 stores within the next 10 to 15 years. If that goal is accomplished, it would imply an impressive 339% expansion of the current footprint between now and 2034 or 2039.

The financial implications of this outlook are hard to ignore. Should Dutch Bros get even remotely close to this objective, its revenue will undoubtedly be meaningfully higher than it is today. New locations generate more sales. But Dutch Bros is also growing same-store sales, at a pace of 4.1% in the latest quarter. That’s much better than the trends at larger rival Starbucks.

The business is already profitable, too. Its net income more than doubled year over year to more than $22 million in the second quarter. As the company scales up, that margin should increase as well. That’s because Dutch Bros should be able to better leverage its expenses to the benefit of the bottom line.

Expectations are sky-high

On the surface, there’s a lot to appreciate about this business. Therefore, you might be wondering why you don’t already own the stock in your own portfolio. I take a different view. In fact, I’m not confident that Dutch Bros can outperform the broader S&P 500 between now and the end of the decade.

The industry is incredibly competitive. There is nothing stopping well-funded entrepreneurs from opening a new coffee shop on the corner. And customers have zero switching costs, so nothing’s preventing them from buying coffee from other shops.

This setup makes it difficult for companies in the industry to develop durable competitive advantages, otherwise known as an economic moat. In this market, Starbucks clearly possesses a moat, mainly due to its strong brand presence. Plus, it has huge scale, with its 39,477 global stores. That helps out in other ways when it comes to effective marketing, tech investments, and finding suitable real estate for new locations.

At its current size of just over 900 locations, I don’t believe Dutch Bros has a moat. This is obvious when you find out that its return on invested capital of 2.7% is alarmingly lower than the 57.1% Starbucks boasts. Maybe one day Dutch Bros can be as high-quality as its dominant rival, but it’s not there yet, and it might never get to that point.

Dutch Bros shares also trade at an absurd valuation right now, which introduces a major headwind to generating strong investment returns. The price-to-earnings ratio of 139.4 is ridiculously high, and it bakes in lofty expectations about the company’s future. Investors had better have strong conviction that earnings are set to rise rapidly in the years ahead to justify paying that high price.

I believe the bear case is more compelling. Therefore, not only do I think the stock should be avoided, but I also don’t see it beating the S&P 500 over the next six years.