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Starbucks; A Stock Overdosed From Too Much Caffeine

Dec. 05, 2013 8:47 PM ETSBUX
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Seeking Alpha Analyst Since 2013

Fourth year finance and economics student at the University of Toronto

The price of the stock has immensely appreciated after the financial crisis, the company continued to deliver growth and solid numbers in their earnings reports. The recent acquisitions will enable Starbucks(SBUX) to expand their portfolio in food retail sector. Moreover, the global expansion in new regions such as India and China will enable the company to generate solid future cash flows.

The future seems bright for Starbucks, however if we look at several metrics analyzing the financials we can see that the Company is very much overvalued. It is possible to see the substantial increase in P/E ratio from 2008, and if you compare it to the peer median looking at companies like (MCD),Caribou Coffee and Tim Hortons(THI), this company is OVERVALUED. Also, looking at the EV/EBIDTA, its possible to see the company's metric is really disappointing.

Looking at the Insider Transactions of the Company it is possible to observe that the executives are selling, this is NOT A GOOD SIGN.

Through some financial analysis it is possible to expect that, the short run is very gloomy for the Company. They will not be able to deliver the expectations of the market in their earnings, the EPS will stay flat until the end of the fiscal year(Sep 2014). However, in the long run, the free cash flows will be solid and it is possible to expect a upside.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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