Latte, Anyone? What the Starbucks Chart Tells Us About the Economy

Most of those who doubt the resilience (or the very reality) of the bull market we've been in since March mention the death of the consumer as their main rationale. I thought I'd take a technical look at a consumer stock if there ever was one: Starbucks (SBUX). Starbucks isn't just any old consumer stock, it's been THE consumer stock of the 1990's and 2000's, serving premium (some say overpriced) coffee to the hip urban professional class.

The first chart, a daily chart of Starbucks, shows us that SBUX has actually been in a bull market since its 11/20/2008 closing low of 7.17. After its November 2008 low, SBUX made a higher low on 3/9/2009 at 8.27 and then it was off to the races, reaching 19.71 last Friday, up 175% from its low. The stock is comfortably above its 200, 50 and 20-day moving averages which are all trending upwards. In other words, it is in a major, confirmed bull move and not showing any sign of slowing down.

(Click to enlarge)

The second chart, a chart of SBUX relative to SPY (the S&P500 ETF), is even more telling. It's showing us that Starbucks started underperforming the overall market as early as June 2006, way before the Great Recession of 2008 and basically when it became clear (to some people at least) the housing market - and by inference the consumer - was going to be in serious trouble. One can picture the marginal consumer of Starbucks Lattes and Frappuccinos, having extracted as much equity as possible from his or her home and finding out that house prices had stopped going up (and even started going down in many places), cutting down on expensive coffee breaks.

(Click to enlarge)

Conversely, the relative price chart shows that SBUX started to outperform the market as a whole in November 2008 and has been outperforming since. Having been so right in anticipating the recession, we are entitled to believe the Starbucks stock will also be right in anticipating the end of the recession. It would seem the consumer, after being dead for two and a half years, has resuscitated if we are to believe the sweet nothings the SBUX chart has been whispering in our ears lately.

Disclosure: No positions in SBUX

Comments

[Dave Wrixon:]

And the Earnings?

Aug 24 10:36 AM

[TeresaE:]

Is there any correlation between actual sales/earnings and the stock price?

And really, while Starbucks may have been the epitome of "urban hipsters," it is now the "dammit, I deserve some treat" place to spend your last $5 before payday. And it sure as heck is cheaper than the massage or shirt you can no longer afford.

Aug 24 10:40 AM

[Isam Laroui:]

Earnings? I'm not familiar with that concept, sorry. Just kidding.
I do technical analysis, not fundamental analysis. I'm sure you'll find many informed fundamental views on SBUX on Seeking Alpha.
I'm of the school that price usually reflects past earnings and discounts future earnings. Obviously, that's not always the case and the price of a security can be totally out of whack, as recent event have shown.

Aug 24 10:56 AM

[conceptwizard:]

If wonder how much impact shuttering several hundred stores and laying off workers had on the stock price?

Aug 24 01:08 PM

[John Galt:]

I agree you have to look at the laying off of workers, shutting down stores, if it was already over/undervalued in the past etc.

There also a "chocolate does well in a recession" concept where sales do well because although you might be hurting for money, you still can afford to buy or even over pay for a 1 dollar stick of your favorite chocolate.

Over paying for a 5 dollar coffee is fine... especially for the well off crowd... but the other retailers are still reporting top line pain.

Aug 24 02:14 PM

[Per:]

Look at the daily and weekly chart; it's overbought.

Aug 24 02:56 PM

[Mark Bern:]

I appreciate the honesty of the author in revealing that he doesn't look at fundamentals. That is refreshing. But I do and would like to share the following:

Revenue is up in the June Qtr by about $70 million over Qtr1 09. However, revenues are down $212 million in Qtr2/09 vs Qtr4/08.

Earnings are on the rise due primarily to cost cutting it would seem. Earnings were up $87 million Qtr2/09 over Qtr4/08. But Earnings for the full fiscal year 2008 were down $357 million compared to 2007.

It appears that most, if not all, cost relating to their reorg. had hit the income statement by Qtr1/09. The trailing P/E is about 57. Unless some very impressive top line improvement occurs, I would think that the stock looks a bit pricey for my blood. But then again, I am more of a value investor than a momentum player.

Aug 24 03:13 PM

[Swashbuckler:]

I'm not sure how Starbucks qualifies as "THE consumer stock of the 1990's and 2000's" when its target market is "the hip urban professional class". A large number of people in small towns in middle America will go through their entire lives and never see a Starbucks. Wal-Mart or J.C.Penney would have been a better proxy.

Aug 24 03:44 PM

[rosey99:]

Interesting piece, and interesting chart too. Especially because I am looking for SBUX to make a new low sometime in the coming year. They have trimmed just about all the fat they are going to trim, and the consensus is around .75/share for '09 which translates to a P/E of around 26, with revenues forecast to fall about 5% (+/-) versus '08.

I don't see too many companies that deserve a P/E of 26 (and that's assuming they hit their numbers) in the consumer discretionary space, especially a company that has declining YOY revenue. Though what company can that not be said of these days?

But being a technician, perhaps you would comment on where expected resistance might show up. Looks to me like it is right on the cusp of breaking 38.2% retracement if it can hang in here for a while. BTW, I am definitely not a technician, but I am looking for a good strike on some Jan 2011 puts.

Aug 24 09:19 PM

[Isam Laroui:]

Speaking of "informed fundamental views on SBUX", thank you rosey99 and Mark Burn. Your comments are all the more valuable that they contradict my bullish technical view of the stock.

[Sorry for the typo in my previous comment (it should be "recent events" instead of "recent event")]

Aug 30 09:46 AM

[Isam Laroui:]

I meant Mark Bern, sorry again.

Aug 30 09:49 AM