Karl Zachar

Is Starbucks Getting a Caffeine Boost?

I agree with Gilbert's positive sentiment on SBUX. Starbucks is still a terrific brand name with a loyal customer base. The question is: "Why buy NOW?" Over the past two years (SBUX peaked in May 2006), the stock has been on a downward trajectory. No one has made money with SBUX shares (except for shorts). I am not smart enough to pick the bottom. Sure, having a major management change can’t hurt. But the share price won’t turn until it becomes too cheap not to own. Right now it trades at EPS multiple of 18X ’08. EPS is growing at 14%. We might have to wait until Schultz gets those profits growing again.

Note: there may not be too many Starbucks in Montana, but in NYC, there one on literally every corner. Getting EPS growth back to 25% won’t be easy.

Karl Zachar
karlzachar.com