Starbucks (NASDAQ:SBUX) is an excellent company that you should be pleased to own. It has good fundamentals, but recently the price has begun to pull back. The valuations appear to be on the decline as are the technicals.
SBUX continues to beat earnings estimates. This time it was an increase over last years second quarter by 18%. Revenue and margins also increased year over year by 15% to over $3.2 billion. Strong business in Asia outpaced Europe with world wide openings of 176 new stores. Starbucks plans to open over 1,000 new stores in the coming year.
The partnership with Green Mountain Roasters (NASDAQ:GMCR) is moving along nicely. New coffee machines will be on the market in the near future.
Current Valuation for Starbucks
Comments: These are not strong Valuations and Target Price Projections. The Valuation Divergence is negative. When I do further fundamental studies, the results neither improves nor declines. Projected earnings growth for SBUX indicates that it will be steady through 2015. My technicals are currently graded as, "good" as are my consensus opinions.
This suggests that SBUX will continue to follow the general market indices. (see the below 20 year chart).
Security's valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning! I do not recommend buying SBUX due my anticipation of a bearish technical cycle.
Plus 10+% / minus 20+% from the current price.
Forward P/E (fye 12/ date):
Price to Sales:
3.11 (a bit high)
Price to Book:
Return on Investment (R.O.I.)
(minus) - 20+% from current the price.
Source of raw data: Finviz.
Projected Price is calculated and produces a probable range of the current price over the coming one to three months. Fundamental Valuation and Technical Opinion is calculated and translated into a Rating. See the below Report Card. I often suggest cash and patience as an alternative.
Fundamental - weighting (40%)
Technical - weighting (35%)
Consensus Opinion - weighting (25%)
Report Card -Grade: ( 0 - 100 / A - F )
55 / F
89+ / B+
My weighted Fundamental, Technical and Consensus Opinion ratings range from Excellent to Very Poor. Grades below 90 / A are not current (never are) candidates for buying. Grades above 60 / F are not current (never are) candidates for short selling. Information and data are ever changing, so be alert. Every company's "Grade" can be from a neutral grade (60 to 90 / D to B) to a buy (greater than 90) or short sale (less than 60) in a very short time.
Further support for the above notes can be read in my Instablog article on "My Rotation Model."
The specialty eatery industry is and has been very strong since early 2009. This fact is applicable, both fundamentally and on the charts. Starbucks is technically in sync with its fundamentals and is in stride with its industry. Normally, that would be a positive remark. Looking at the above tables and the chart below tells us a potentially different story. My tables and charts make crystal-clear that buying shares of SBUX has been very profitable. And ownership in GMCR, more recently has been a total disaster. (That too should be a teaching lesson for all investors). My criteria for taking a bullish position is that the company must have the prospect within its fundamental valuation and technical chart to outperform the general market, its sector, and industry group.
The general market is currently fundamentally overvalued and technically overbought, and its consensus opinion is much too bullish. It is showing signs of serious deterioration, especially in the area of breadth. This means that you must consider holding cash or perhaps take bearish positions in the coming weeks.
My analytic focus is investing wisely, e.g. taking advantage of the bull / bear cycles as they occur within the overall marketplace. Integrating conservative fundamental analytics within these technical cycles means maintaining a process of the thorough and on-going analytics of many companies, sectors and industry groups.
I suggest that you take a long look at this 20-year chart. Having a longer-term perspective of a possible future investment will always give you a more consistent bottom line. Comparing the SPDR, S&P 500 ETF (NYSEARCA:SPY) tells a very compelling story about SBUX.
Despite SBUX being the stronger company, I expect both SBUX and GMCR to be under moderate pressure in the coming weeks and perhaps longer. For a resumption of an up-trend, we just may have to wait awhile. SBUX is definitely a company on my future buy list. The comparison of these two companies should make a strong statement of why I stress doing your homework well.
I have been recently bearish on the general stock market. My articles on the economy are more negative than what we read from the media. The latest postings in my Instablog are focused on securities that should not be held in your portfolio. It is important for you to understand that holding cash during questionable time frames is a wise choice. (This is definitely a "questionable" time frame.) This coming Saturday, I plan to include Starbucks in my weekly Instablog posting.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.