Jim Cramer Explains Why Improving Margins Will Make Starbucks Stock Cheap

Starbucks Corporation (NASDAQ:SBUX) was among Jim Cramer’s stock calls on Mad Money recently as he recapped mega-cap tech earnings. Cramer called the company’s latest quarter a “home run,” as he commented:

Last night, the once bedraggled Starbucks reported and beat the numbers and raised the forecast. The quarter was a home run. But the analysts were surprisingly muted, talking about disappointing margins and a guidance boost that seems too small given the dramatic increase in same-store sales. I think they got it all wrong, and the market clearly agrees with me, which is why Starbucks shot up more than 8% today. That’s a massive gain…

Brian knows that in order to pull off this kind of turn, you’re going to have to initially hurt your gross margins. He took them down to 10%, but they should bounce back to 13% soon. He told me this morning when I spoke to him on Squawk on the Street. And when they do, the naysayers will be forced to upgrade… Once Brian gets these margins in the right place, which he will, this stock will become cheap, cheap, cheap… Has Starbucks, the stock gone up too far, too fast? Oh, maybe for today, but Niccol’s a long may she reign character, and that’s exactly what I think will happen with the stock of Starbucks.

Pixabay/Public Domain

Starbucks Corporation (NASDAQ:SBUX) sells coffee, tea, and other beverages, as well as food products, through its stores and licensed outlets. The company’s brands include Starbucks Coffee, Teavana, Ethos, and Starbucks Reserve.

READ NEXT: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years 

Disclosure: None. Follow Insider Monkey on Google News.