Turley Muller

How Can the PEG Ratio Be Used to Value Stocks?

Check out an old post on my blog that uses similar methods to value a stock and MS Excel to import data from the web

financial-alchemist.bl...

Smart Money Faceoff Review: Starbuck's Coffee

You’re correct. I have never worked at McDonald’s or any other fast food restaurant. I understand that there are complexities involved with new product roll-outs,
Mr. Coffelt stated that Starbucks should increase foot traffic and ticket price with new food offerings but the business becomes more complicated and easy to turn customer’s off.
My contention was this was weak point he gives as a reason for not buying the stock. His implication is that SBUX do more harm than good, by attracting customers and then running them off. I think the chances of that happening are remote, as I said in my article
My point was that I don’t expect SBUX or MCD to have significant issues the new offerings are a natural line extensions to their current business. It’s not like the two are getting into something vastly different than their current operations.
I agree with the fact that MCD has more experience, they have the best operations designers and engineers and they exert a great deal of effort in research and testing to deliver taste without sacrificing efficiency.
I remarked that MCD faces a similar challenge. So, that’s not a real valid argument against buying SBUX.
I also said that I felt SBUX probably could execute the roll-out better than MCD. Because the roll-out ultimately gets executed by front-line employees on the floor, not the corporate process designers and research gurus. SBUX attracts higher quality employees. They are better paid and more educated. Second, SBUX stores are corporate operated, so they maintain a high level of control over front-line operations. MCD is mostly franchised stores, and maintaining control and consistency is more difficult.
It didn’t have to look at the data here: ACSI Datahttp://theacsi.org/index.php?... Table to know that MCD is ranked last in customer service. Starbucks scored top rating. Thus, it’s reasonable to assume that a restaurant with the best customer satisfaction, meaning they do their job well, could execute a product extension better than a restaurant that can’t even manage to deliver satisfactory service currently.
Additionally, MCD get 2/3 business drive thru, and majority in the morning hour. They can service customers quickly because breakfast menu is simple, and McMuffins, Biscuits, McGriddles, can be cooked and shelved before an order is made, to be subsequently placed in an upcoming order. Steaming and frothing milk requires time, and I am not sure to what extent it’s possible to prep pre-order. But, if lattes and the specialty coffee based beverages slow up the service line, that will not be good. So these issues are why I leaned towards SBUX over MCD.
To me, this isn’t a major issue, like I said they both have challenges and both have adequate resources to be successful. It’s a part of business adapting to change and the tastes and preferences of consumers. There may be small amount of risk, but it’s already priced in.
The purpose of my article was to evaluate both arguments are provide my opinion as to which expert did a better job- providing rational and pertinent points supported with some type of factual evidence.
I felt the expert recommending not to buy wasn’t as compelling as the expert for buying SBUX