Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Is Starbucks Corporation (SBUX) A Good Stock to Buy?

Page 1 of 2

Despite its large size, Starbucks Corporation (NASDAQ:SBUX) had a quite successful second quarter of its fiscal year (Q2 ended in March), with the company’s revenue growing 11% versus a year earlier fueled by comparable store sales of 6%. In geographic terms, the Americas experienced sales growth in line with the overall numbers; higher growth rates in Asia/Pacific were offset by weaker numbers in EMEA. We’d note that the fiscal Q1 numbers showed sales growth of about 11% as well. Starbucks Corporation (NASDAQ:SBUX) has managed to convert the better revenue numbers into higher earnings: during the first six months of this fiscal year net income has risen 19% from its levels a year ago, with earnings per share of $1.08. The $1.4 billion in cash flow from operations is also a significant increase; Starbucks Corporation (NASDAQ:SBUX) returned most of this cash to shareholders, including through about $590 million in share repurchases.

If we annualize the $1.08 figure, we get a P/E multiple of 31. Even as markets generally assign high multiples to quick service restaurants, this still reflects a considerable premium for Starbucks Corporation (NASDAQ:SBUX) in our view based on its growth rates and on its brand popularity among key demographics. Wall Street analysts expect EPS to rise further in the following fiscal year, to $2.63, which would represent a 21% increase from this year’s levels- in other words, an actual increase in earnings growth from the rates we are currently seeing. That would result in a forward P/E of 25, and frankly it seems like a high bar for the business.

Steven Cohen

As part of our work researching investment strategies, we track quarterly 13F filings from hundreds of hedge funds and other notable investors; we’ve actually found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We can see from our database that billionaire Steve Cohen’s SAC Capital Advisors had 3.2 million shares of Starbucks Corporation (NASDAQ:SBUX) in its portfolio as of the end of March (see Cohen’s stock picks) while D.E. Shaw, a hedge fund managed by billionaire David Shaw, reported a position of 1.2 million shares (find D.E. Shaw’s favorite stocks).

The closest peers for Starbucks are likely Panera Bread Co (NASDAQ:PNRA) and Dunkin Brands Group Inc (NASDAQ:DNKN). These two stocks also carry premium valuations, and even with the sell-side being optimistic on each’s prospects over the next year their forward P/Es are 23 and 24 respectively (and therefore in line with that of Starbucks).

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!