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Welcome to Profit Confidential • Tuesday, May 22, 2012

Starbucks Just Keeps Growing

Monday, December 19th, 2005
By George Leong, B.Comm. for Profit Confidential

As a stock analyst, every now and then I wish I had grabbed on to a trade that was sitting there right in front of me. Just take a look at the one-year price chart of coffee giant Starbucks Corporation (NASDAQ/SBUX), and you will understand where I’m coming from.

 The one-year chart shows a bullish double formation with two sub-$24 bottoms emerging in April and September 2005. The first bottom was not a clear buy signal, but it did suggest a potential rebound in the stock. If you noticed the double bottom formation, you would be up over 30% in about three months! That is a pretty good trade — and I wish I had jumped on the opportunity.

 Despite the PEG of 2.03 and forward P/E of 37.98 times its estimated FY07, the stock has excellent long-term potential, and clearly the market is rewarding the company. It’s not just the coffee I like at Starbucks, it’s also the awesome price chart. Since its IPO debut on June 26, 1992 at a mere $0.67, the stock is up a whopping 4,548% and has easily outpaced the NASDAQ, DOW, and S&P 500. Starbucks has also outperformed tech bellwether Microsoft Corp. (NASDAQ/MSFT) during this run.

 So what gives? Growth is strong not only in the United States, but also worldwide in Canada, the United Kingdom, Australia, Singapore, and Thailand. Over the past year, Starbucks has opened 1,672 stores, and it now has a global network of 10,595 stores.

 What excites me about the stock is its serious intention to expand its presence in China — a virgin ground for coffee shops — where the growth potential is staggering, given the rise of the middle class. Chairman Howard Schultz expects a future of thousands of stores in China.

 Same store sales in November were an impressive 7%, versus the estimate of 3.9% according to a poll by Thomson//First Call. For the four-week and eight-week periods ended November 27, year- over-year revenue growth was 22% and 21%, respectively.

 Long term, you’ve got to like Starbucks. Just thinking of the potential in China is exciting. It won’t be easy, if anyone can pull it off, it’s Starbucks. The proof is in the chart.

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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