Starbucks (SBUX) Has Fallen 8% in Last One Year, Underperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of Pershing Square Capital Management’s top stock picks. Pershing Square, an investment management firm, is bullish on Starbucks Corp (NASDAQ:SBUX) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Starbucks Corp (NASDAQ:SBUX) stock. Starbucks Corp (NASDAQ:SBUX) is a chain of coffeehouses and roastery reserves.

On August 13, 2019, Pershing Square had released its Q2 2019 investor letter. The investment firm said that Starbucks Corp (NASDAQ:SBUX) was one of the biggest contributors to its performance for the first six months of 2019. The stock has posted a return of -8.1% in the trailing one year period, underperforming fund’s benchmark the S&P 500 Index which returned 22% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Starbucks Corp (NASDAQ:SBUX) stock has risen by 0.5%.

Earlier this month, we published an article revealing Pershing Square’s bullish investment thesis on Starbucks Corp (NASDAQ:SBUX) stock in its Q2 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Starbucks Corp (NASDAQ:SBUX).

Pershing Square fund posted a return of 45.3% during the first half of 2019, outperforming fund’s benchmark the S&P 500 Index which returned 18.5% in the same period. Let’s take a look at comments made by Pershing Square about Starbucks Corp (NASDAQ:SBUX) in the Q2 2019 investor letter.

“Starbucks reported a superlative fiscal third quarter driven by a meaningful acceleration in same-store sales and a return to transaction growth in its two key markets, the U.S. and China. Global same-store sales grew 6%, with equal contributions from transactions and ticket. This was the first quarter since early 2016 in which same-store sales grew in excess of 4%, as well as the first quarter since then with positive transaction growth both globally and in the U.S. The store base continued to grow at a 7% rate, generating 11% organic revenue growth.

U.S. same-store sales grew 7%, including transaction growth of 3%, which management called an “inflection point” and a “step change” from the 4% same-store sales growth achieved in the prior three quarters, and the 1% to 2% growth achieved in the previous year. Same-store sales grew across all dayparts, including in the afternoon for the first time in three years. The key drivers of U.S. sales were in-store operational enhancements, cold beverage innovation – including Nitro Cold Brew which is now in two-thirds of stores and will be in all stores by September 30 – and continued digital strength, with the company’s seamless rollout of recent loyalty program changes.

China same-store sales grew 6%, including transaction growth of 2%, which is impressive considering the 16% growth in the Starbucks China store base, and in light of rapid expansion by competitors. Mobile order and pay, a capability that we believe is even more critical in China than it is in the U.S., was launched in one-third of stores this quarter and should be an important catalyst for growth going forward.

The market has recognized that Starbucks, in the words of CEO Kevin Johnson, is “firing on all cylinders,” with the stock up 52% this year, bringing the total stock price return since we invested last summer to 96% (10). The stock now trades at just over 30 times consensus fiscal 2020 EPS, a premium to its historical average valuation, which we believe appropriately reflects a clear outlook for mid-teens underlying EPS growth over the next several years, near-term momentum in the business which could prove current earnings estimates to be conservative, and a superb management team that is focused on creating value for shareholders.”

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In Q2 2020, the number of bullish hedge fund positions on Starbucks Corp (NASDAQ:SBUX) stock decreased by about 21% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Starbucks’s growth potential. Our calculations showed that Starbucks Corp (NASDAQ:SBUX) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.