a coffee house we always back

What Does Starbucks Corporation's (NASDAQ:SBUX) Share Price Indicate?

Today Chump is looking at our favourite coffee house Starbucks Corporation (NASDAQ:SBUX). As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Starbucks’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.


This year.


Starbucks (NASDAQ: SBUX) hasn't had the easiest ride throughout 2022. Not only is its share price down nearly 20%, but it has been facing a new bout of public pressure as unionization efforts chip away at founder and interim CEO Howard Schultz's leadership.


At the same time as these pressures have risen, Starbucks' business has accelerated, with unprecedented sales highlighting the resilience of its consumer-facing brand. As Starbucks seeks to navigate its upcoming CEO transition, the business is giving long-term investors plenty of reasons to be excited about buying and holding shares today.


WHAT STARBUCKS DOES

As one of the most ubiquitous brands in the world, Starbucks likely needs no introduction to Stock Advisor members. The coffeehouse chain operates roughly 36,000 locations in 83 countries across the world, serving hundreds of millions of beverages every single week.


Its premium brand and recognizable product give the business pricing power over other coffee choices, a position that is further bolstered by an increasingly successful loyalty program, Starbucks Rewards. The nearly 29 million members who have loyalty accounts with Starbucks not only drive a majority of sales in the U.S. but also typically have much higher lifetime value than unregistered customers.


Starbucks has created a growing and highly profitable business model around premium coffee and iced beverages. It is generating consistent performance from its brick-and-mortar locations while also maintaining the leading market share across the world for ready-to-drink coffee beverages sold at third-party retail outlets. While the business has gone through its ups and downs, Starbucks has created an enviable ecosystem of brand affinity, distribution, and scale. Moreover, leadership has consistently rewarded shareholders with dividends, share repurchases, and market-beating capital gains.


What Chump Likes

Starbucks is often considered a relatively stable blue chip investment that investors could buy anytime. However, the Stock Advisor team believes this stock is an especially timely purchase after reading the company's fourth-quarter earnings report. Global economic pressures have lowered expectations for businesses that sell consumer discretionary products, but these concerns have yet to show up in Starbucks' results.


In the fourth quarter, Starbucks grew global revenues 13% year over year to all-time highs north of $32 billion. Comparable-store growth -- the year-over-year performance of individual retail stores -- also grew an astounding 12% in North America, largely buoyed by incredible demand for higher-priced customized iced beverages.


Why is that so important? Iced beverages have been one of the fastest-growing categories for Starbucks, representing more than three-quarters of total sales last quarter. More importantly, these iced drinks are more readily customizable than hot ones. More than 60% of Starbucks' beverages were customized last quarter, producing an upcharge for customers that improves Starbucks' drink-level margins.


These upcharges can help Starbucks grow sales even when the economic environment worsens, effectively improving monetization of loyal customers who can afford premium drinks, making up for the loss of more price-sensitive visitors.


Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 53% over the next couple of years, the future seems bright for Starbucks. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means.

Are you a shareholder? It seems like the market has already priced in SBUX’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

What to trade a stock?




Ready-made Portfolios

Our Traders' Top Stock Picks to Get you Started

One of the hardest parts of trading and investing is knowing where to start. Chump Profit's ready-made portfolios have been designed to help you to take the first step.


There are different portfolios based on different goals, stock types and objectives to help you choose the one that is right for you.


We can also assist you in choosing the right broker in which to buy or trade the stocks.