Is it Time to Buy Starbucks Stock?
Company Overview
Starbucks Corporation is an American chain of coffeehouses founded in Seattle, Washington in 1971. They are, by an enormous amount, the largest coffeehouse chain in the country both in terms of revenue as well as by market cap. Starbucks has continued to expand their locations in order to keep growing their revenue, increasing from approximately 35 thousand locations in 2022 to now having the second most locations of any restaurant chain in the world, operating over 38 thousand locations, only trailing McDonalds.
Business Model
Starbucks has a very simple and very straightforward business model, especially when it comes to their customer base. They have positioned themselves as an accessible provider of high-quality coffee, and have not segmented their customer base. Anyone can drink coffee, and Starbucks tries to cater to anybody who may want to try their product.
When it comes to the real revenue generating portion of Starbucks, they have created retail locations to sell their own product, while also having a wholesale arm that allows customers to buy their products directly, rather than needing to go to a Starbucks location. While the retail locations make up the majority of Starbucks’ revenue, approximately 82%, while licensed stores, partner locations allowed to sell Starbucks products, as well as sales of pre-packaged products make up the remainder.
By having licensed partner stores as well as pre-packaged goods to sell, Starbucks can continue to expand into other markets without assuming the full risk and cost of operating a retail location. Their retail locations generate approximately $1.2 million per year, and this is a large part of why Starbucks’ expansion globally is such a key part of their strategy,
Recent Performance
Starbucks has had several very strong performances financially recently, especially in terms of revenue. Their Q2 ending in March 2024 was their first decrease in quarterly revenue in nearly two years, though they are expected to rebound. Revenue for Starbucks has increased annually every year since at least 2009, and recent performance indicates that even though they had a down quarter, they can continue their growth trajectory. They did increase 6% in Q3 compared to Q2, the first signs that they are recovering from that down quarter.
Stock Performance and Outlook
Starbucks stock has struggled significantly, and the time frame does not particularly help find out when improvement may be coming. With a current price of $75.09, they are approaching their 52 week low of $71.55. Since the down earnings report in May of this year, Starbucks stock has dropped considerably, falling from $88.49 to $74.44 the next day. When comparing over the past full year, the stock is down over 25%, and is down 22.02% over the past 5 years. The question is why is Starbucks stock struggling?
Part of this can be attributed to the struggles in Q2. Falling well short of projections saw a single-day loss of over 15% of the stock price, which is certainly not good news, and this alone has been a major part of the struggles, but economic factors are certainly playing their part. Customers are price conscious right now as the economy continues to struggle and as a discretionary stock, price conscious consumers may stop shopping at Starbucks and instead seek a cheaper alternative.
Another factor that may be hurting Starbucks is the intrinsic value. GuruFocus, who I have written about in many of my other articles, has a formula to help determine intrinsic value based on free-cash-flow, and that can indicate whether a stock is overvalued or not. Their current intrinsic value of $32.29 for Starbucks does indicate that the stock may be overvalued, but the price-to-projected-FCF range is actually better than it has been on average over the past 10 years, so there may actually still be some value from this stock. The average price target for Starbucks is $87.42, which also seems to indicate that the market believes there are brighter times ahead for Starbucks, even after there recent struggles.
Conclusions
While Starbucks is one of the largest restaurant chains in the world, the painting of their stock is murky right now. While their revenue growth has been strong, the stock price has faltered in recent years, and has become a concern for some investors. I believe that now the price has fallen to a point where it actually has become an intriguing buy opportunity for investors again, with recent performance improvements seemingly not factored into the stock price. I believe that it is a buy opportunity at the current price, but also think caution is necessary due to the recent volatility in their price,
Is it Time to Buy Starbucks Stock?
Company Overview
Starbucks Corporation is an American chain of coffeehouses founded in Seattle, Washington in 1971. They are, by an enormous amount, the largest coffeehouse chain in the country both in terms of revenue as well as by market cap. Starbucks has continued to expand their locations in order to keep growing their revenue, increasing from approximately 35 thousand locations in 2022 to now having the second most locations of any restaurant chain in the world, operating over 38 thousand locations, only trailing McDonalds.
Business Model
Starbucks has a very simple and very straightforward business model, especially when it comes to their customer base. They have positioned themselves as an accessible provider of high-quality coffee, and have not segmented their customer base. Anyone can drink coffee, and Starbucks tries to cater to anybody who may want to try their product.
When it comes to the real revenue generating portion of Starbucks, they have created retail locations to sell their own product, while also having a wholesale arm that allows customers to buy their products directly, rather than needing to go to a Starbucks location. While the retail locations make up the majority of Starbucks’ revenue, approximately 82%, while licensed stores, partner locations allowed to sell Starbucks products, as well as sales of pre-packaged products make up the remainder.
By having licensed partner stores as well as pre-packaged goods to sell, Starbucks can continue to expand into other markets without assuming the full risk and cost of operating a retail location. Their retail locations generate approximately $1.2 million per year, and this is a large part of why Starbucks’ expansion globally is such a key part of their strategy,
Recent Performance
Starbucks has had several very strong performances financially recently, especially in terms of revenue. Their Q2 ending in March 2024 was their first decrease in quarterly revenue in nearly two years, though they are expected to rebound. Revenue for Starbucks has increased annually every year since at least 2009, and recent performance indicates that even though they had a down quarter, they can continue their growth trajectory. They did increase 6% in Q3 compared to Q2, the first signs that they are recovering from that down quarter.
Stock Performance and Outlook
Starbucks stock has struggled significantly, and the time frame does not particularly help find out when improvement may be coming. With a current price of $75.09, they are approaching their 52 week low of $71.55. Since the down earnings report in May of this year, Starbucks stock has dropped considerably, falling from $88.49 to $74.44 the next day. When comparing over the past full year, the stock is down over 25%, and is down 22.02% over the past 5 years. The question is why is Starbucks stock struggling?
Part of this can be attributed to the struggles in Q2. Falling well short of projections saw a single-day loss of over 15% of the stock price, which is certainly not good news, and this alone has been a major part of the struggles, but economic factors are certainly playing their part. Customers are price conscious right now as the economy continues to struggle and as a discretionary stock, price conscious consumers may stop shopping at Starbucks and instead seek a cheaper alternative.
Another factor that may be hurting Starbucks is the intrinsic value. GuruFocus, who I have written about in many of my other articles, has a formula to help determine intrinsic value based on free-cash-flow, and that can indicate whether a stock is overvalued or not. Their current intrinsic value of $32.29 for Starbucks does indicate that the stock may be overvalued, but the price-to-projected-FCF range is actually better than it has been on average over the past 10 years, so there may actually still be some value from this stock. The average price target for Starbucks is $87.42, which also seems to indicate that the market believes there are brighter times ahead for Starbucks, even after there recent struggles.
Conclusions
While Starbucks is one of the largest restaurant chains in the world, the painting of their stock is murky right now. While their revenue growth has been strong, the stock price has faltered in recent years, and has become a concern for some investors. I believe that now the price has fallen to a point where it actually has become an intriguing buy opportunity for investors again, with recent performance improvements seemingly not factored into the stock price. I believe that it is a buy opportunity at the current price, but also think caution is necessary due to the recent volatility in their price,