Opinions
Stockchase Insights
Starbucks
SBUX-Q
BUY
Mar 01, 2024
Stock price when the opinion was issued
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Going back to basics. In only 6 months, new CEO has put his stamp on the business. Should be back to double-digit growth next year. Early stages of a turnaround. Incredible franchise. Because people put $$ on their SBUX apps (to the tune of ~$3B), it's making money off this float just like a bank.
Focus includes getting orders through much faster, but creating a better and more welcoming atmosphere. So much about the retail experience today is about the vibe.
It reported today and shares tanked 5.66% today. This is a buying opportunity, because the CEO turned around Chipotle. Give him time; it's only been 6 months. The average wait time is much lower, under 4 minutes, and is investing more in people and less in machines. Same-store sales are rising and sales in China are higher than the previous quarter.
200-day MA is moving up a bit, which is positive. However, the price fell below that 200-day in April (as did a lot of stocks). About 30% below March highs. Always commands a premium valuation due to brand. Fallen below 200-week MA. Paying 30x forward PE, but only 8-9% earnings growth for next 3 years.
Recovery's been slow. Depends on consumer, especially in China. Long term, great name. Wait for better opportunity.
Price today is back where it was in 2019, with a very broad sideways motion and trading range since then. The move from $116 to $76 this year was a huge drop, it really fell apart. Has recovered a bit, but volume is drying up. On any rally, you want to see some good volume. Resistance around $100, so if it breaks above that then it's in a new upward trend. Look elsewhere for now.
Revenue topped, but same-store sales fell short and earnings were soft, though due to a tax charge. Just reported. He considers the overall report good. The CEO is doing a fine turnaround which is why he's holding onto his shares. North America and China same-store sales beat, but was flat internationally. True, numbers have been choppy in recent quarters. In-store sales experience is improving with faster transaction times in the US, their core business and core market. Their long-term turnaround plan is ahead of schedule.
SBUX is trading at 22.4x Forward P/E, at the lower end compared to historical valuations that range from 22.0x to 32x over the last few years.
The share price has been relatively flat in the last few years due to a drop in valuation multiple from 30x, and SBUX has struggled to grow earnings in recent years, largely due to a slowdown in China’s market. Every now and then, SBUX brought its founder back to run things more efficiently. SBUX is still a great franchise SBUX is not a screaming buy, but it looks attractive here given it is trading at the lower end of historical valuations. The company is expected to grow its topline by 9% over the next few years. We are okay to add some here.
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