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Starbucks Still Too Expensive For Me

Feb. 07, 2019 12:54 PM ETStarbucks Corporation (SBUX)26 Comments
AllStarTrader profile picture


  • Starbucks reported a decent quarter, but not enough in my opinion to justify the high multiple shares fetch.
  • The brand deserves a premium valuation but should still trade at a reasonable level given growth expectations.
  • We find what is a fair price for shares using DCF method.


Starbucks (NASDAQ:SBUX) has had a dismal few years. With slowing same store sales growth, multiple executive departures, and a maturing North American market, its shares have been under pressure. At some point, every great company begins to see its growth slow and its multiple compress. While I believe Starbucks is a great company and will have a great future, we need to find what a fair price for the shares are. We also should look for when might be the time to start a position based on fundamentals. Despite a strong quarter recently reported, this is the first in a while and needs to uphold as a trend for the shares to continue to move higher.

Starbucks Slows Down

The law of large numbers has taken its toll on Starbucks. We have seen what appears to be the maturation of the company in the past several quarters. While growth is still present, it is not at the levels it once was. Below was see a snapshot from the recent 10-Q.

A few positive notes first, revenue growth was 13.2%, shares outstanding decreased 12.5%, and a dividend increase of 20%, were all recognized year over year. While earnings growth was present, it was not that great of a change as operating expenses rose just as fast as revenue.

Deep within the 10-Q we find why operating costs have risen. Cost of sales as a percentage of total net revenues increased 400 basis points for the first quarter due to a food-related mix shift. Because food made up 18% of overall company sales up 1% year over year, they recognized higher costs. Also the licensing of the "Consumer Product Goods" division and "Food Service" division led to increased costs. What is interesting is that they continue to expand their food offerings to drive revenue growth, but overall this is reducing profit margin.

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ChartData by YCharts

This article was written by

AllStarTrader profile picture
Started investing at 11 years old. Self taught, taking an analytical all around thought process approach to investing. Look at everything from all angles and every view and you will never miss anything. I believe in collecting dividends from most of my investments, just as an investment in a private company would return profits, so should my stocks. I prefer to invest based on fundamental values, but will consider the story of the company itself when necessary.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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