In 1971, Starbucks (SBUX) had only one store, in Seattle's Pike Place Market. In the 42 years following, they grew to well over 17,000 stores, selling millions of coffees each day. In today's article, I will be looking at SBUX's growth over the recent years, as well as its current valuation. For this, I will use the annual reports, found here, and historical p/e ratios found here.
Let's start by taking a look at SBUX's sales. Over the past 10 years (2003-2012), the total number of stores went from 7,225 to 17,651, increasing by over 9% a year. As the next graph shows, this has done wonders for the amount of sales.
Average annual growth in sales was at an amazing 12.5%, going from just 4 billion dollars in 2003 to over $13 billion in 2012. At the same time, Starbucks was also able to increase its profit margin, which has increased the amount of cash flowing into the company.
In 2003, the profit margin was at only 6.6%, but by 2012, this had grown to 12.4%. With sales and margins improving, the net income for SBUX has gone up like a rocket, growing close to 18% a year on average.
Over the years, SBUX has made billions of dollars and since 2010, it's been paying out part of it as a dividend to shareholders. At its current price, SBUX pays a 1.5% dividend. While this is not very high, there is a good chance it will be increased in the future, as SBUX earnings continue to grow.
Even if Starbucks' profits were to decline, it'd still be able to continue its dividend payments, thanks to the $1.2 billion in cash and cash equivalents it's managed to save up in recent years.
SBUX's short-term financial health looks really good, with current assets just under twice the size of current liabilities. The current ratio has been climbing ever since it hit a low in 2007.
Now, even a great company like Starbucks can be a terrible investment if bought at too high a price. At a p/e ratio of 30.7, SBUX is priced for growth. Even though a price of over 30 times earnings is high, it's still below the 10-year average p/e of 37.3. The five-year average is at 30.2.
Even though I usually invest in higher yielding stocks, SBUX seems like a great investment, having increased its profit margin and EPS dramatically over the past 10 years. The solid financial health and the low payout ratio make dividend increases a very realistic possibility over the next few years. At $57.40, SBUX is trading well below its 52-week high of $62.00. I will consider adding some shares in SBUX to my dividend growth portfolio in the near future.
Feel free to tell me your thoughts on SBUX in the comment section below!