Even as Starbucks (SBUX) flirts with new highs, investors have to wonder if the stock will move up higher. The company does quite a few things well; among those is the use of social media. With the horizontal growing plans the company has, along with the low price of coffee, I believe the season of growing is not over yet. Let's take a look at some of these things I've mentioned and what the stock looks like right now.
Starbucks Uses Social Media Well
I have studied and written numerous articles on points dealing with social media, from Tumblr, to Facebook (FB), and even my thoughts on MySpace.com. One of the things that I like to discover and point out is how social media is used by certain companies and how powerful it can be in today's society.
One company that has a good handle on this is Starbucks. The company uses social media to communicate promotions to those that follow it online as well as engage followers in conversations. Social media has made marketing a two-way channel between business and customer.
When I think about it, it's amazing what social media can do for company! Not only can it be used for promotion and communication like Starbucks does but also for engaging customers who could possibly be unsatisfied is another very important aspect of social media. I remember the "old days" when if I had a problem with the company I would have to look for a phone number to try to call them and vent. But today I can just go on Facebook and express my experience to my peers. If I have a problem with Starbucks (which I don't) I can write about it there, or I can send a tweet to Starbucks.
I personally like the idea of being able to send a quick tweet about a dissatisfaction I may have with the company. I have learned that when I send something of this nature I get a better response than if I try to make a phone call. But I really like the reinforcement that social media can play in promotions. It is not uncommon for Starbucks to have a promotion that it sends out via Tweet to have it re-tweeted thousands of times. How does one put a dollar value on something like this?
Coffee at 3 year Low
One sign of profitability for Starbucks and other companies that deal with coffee is the recent move by coffee futures. They fell to their lowest price in three years because there is growing concern that global supplies are exceeding demands. Brazil which is the top exporter of coffee on the globe had an incredible crop this year.
Inventories are the problem. Brazil may increase its coffee shipments by almost 6% next season because farmers have over supplies from the previous year's record crop. Inventories are up 80% from year ago and are the highest in three years!
This bodes well for companies like Starbucks and even Dunkin Donuts (DNKN) who use "Arabia" coffee which is a variety grown there in Latin America. The weather was just perfect for farmers in Brazil as they gathered a record crop for the lower-yielding half of a biennial cycle growing season.
Consider this When Thinking about Starbuck's Revenue Expansion
- Plans to open more than 3,000 cafes in the Americas over the next five years
- Starbucks plans to make this the company's biggest market outside the U.S. by doubling the number of cafes it operates in China to 1,500 by 2015
- Teavana- Starbucks intends to open "tea bars" within Teavana shops
- Bottled Evolution Fresh juices will be available in most U.S. Starbucks locations, replacing PepsiCo's Naked Juice.
- Food currently represents just 19% of sales in domestic Starbucks cafes but that will increase as la Boulange will open the door to offering a bigger selection of baked goods and sandwiches
I am looking at Starbucks from a long-term perspective on this weekly chart. I am really interested in the company's long-term growth after the two-year trends that we can observe from 2010 through mid-2012. After this, the stock appeared to pull back and presently is flirting with new highs again. It honestly looks like the stock is going to continue up because the MACD indicator has not reached a top yet. I like to see the RSI indicator and the MACD working hand-in-hand to identify a potential top. The RSI indicator usually will be oversold (which it is hinting at right now) and the MACD will have identified a top in its MAs start to move down. Since the stock continues the hug the upper Bollinger band and it doesn't look like it has reached a top yet, I believe the stock still has a long term interest in moving up.
Sometimes it's hard to gauge whether one should buy the stock of the company that has moved up so far. From my observations, the combination of potential "in house" expansion and how coffee prices are acting this year, I believe that Starbucks is in a good position to expand its revenue for at least the next couple quarters. And I believe this may translate into a more valuable stock.