If the saying holds true "you can't teach an old dog new tricks," Starbucks is about to prove this wrong. Starbucks a few short years ago was in utter confusion, not only was the founder Howard Schultz not at the helm, Starbucks was about to experience the great recession too. In early 2008 Howard Schultz took back the leadership of Starbucks to help restore financial health. Downsizing was in store for the once-darling growth company. Fast forward to current times and Starbucks is now in a position to once again be the darling of growth. Sales are strong once again at Starbucks locations. Now it is planning to add value added products and services inside the locations and branch out selling Starbucks consumer packaged goods in other locations. By doing this it plans on doubling the Starbucks revenue steam. Its biggest plan is to sell single serve coffee machines under the Starbucks brand. With the recent developments within Green Mountain Coffee (GMCR), Starbucks may be taking candy from a baby.
SBUX is quickly being accepted as a darling of the momentum and growth trade. The reasons for SBUX being aggressively bought on each pullback is strong fundamentals, a new growth story and Gross Profit margins that are adding free cash flow to the balance sheets. SBUX represents a new momentum and growth trade that investors like.
Starbucks is now operating from a great position of financial health. Fundamentally, Starbucks' gross Profit Margin is 58%, which will add great free cash toward its balance sheet. SBUX EPS this fiscal year plans to earn $1.86 per share and next fiscal year estimates are for $2.31. Starbucks is expected to grow at an average 25% growth rate over the next few years. This growth rate represents exponential growth in revenue over the next few years for SBUX.
Technically, SBUX has a constructive chart pattern. Near-term support is just under 52 with resistance just up to 56, only 4 points away. Slow stochastic and MACD seem to be indicating confusion with stochastic suggesting over sold and MACD rolling over suggesting a possible pullback. The SBUX chart looks like you can wait for a bounce off of 52 with a stop loss just under 51 to begin a longer-term position. Pay attention to volume because it has been weak for SBUX. Until we see higher-than-average buy volume we would recommend staying away from buying SBUX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
