Is SBUX Stock Too Expensive?
Starbucks Corporation (NASDAQ:SBUX) stock is still fairly pricey, but volume on Starbucks stock remains robust and Wall Street earnings estimates match.
Everything is rolling over these days in this market—a correction that’s well overdue.
This market correction should have happened late 2014 or early 2015. Top-line sales results among multinationals were deteriorating. Earnings did hold up well, but what mattered was that this was enough for institutional investors to still be nibbling away as buyers.
In the quarter ended December 27, 2015, Starbucks produced solid revenue and operating income growth. Comparable stores sales in the company’s fiscal first quarter of 2016 improved eight percent comparatively or by $285 million.
So far, company management expects approximately 10% in total sales growth this fiscal year over 2015. This is still very much a position that institutional investors want to own.
Technically, the stock just broke its 50-day simple moving average. But so did the S&P 500 Index so Starbucks stock isn’t all of a sudden in its own perilous sell-off.
In my view, not a lot has changed regarding the kind of stock market we’re in. It remains a slow-growth world. Institutional investors want certainty and they want it from the Federal Reserve, corporate earnings, and outlooks (and now even the price of oil).
Similar to what took place during the beginning of the market’s recent upswing, which began in January of 2013, I feel this remains a market for brand-name existing winners. At the very least, this is a market where earnings reliability and dividends are crucial.
The chart for Starbucks stock is featured below:
Chart courtesy of www.StockCharts.com
Naturally, Starbucks stock has been a wealth-creating powerhouse for investors over the long-term and in recent history.
The position corrected significantly during broader market sell-offs and was bid up again by institutions.
So I think it’s very reasonable to expect Starbucks to be a larger company with greater sales and earnings by the end of the decade. Accordingly, this market sell-off could be considered a new buying opportunity for more aggressive, medium- to long-term investors.
What Starbucks really needs to do is basically stay “on plan” with how it tries to keep investors happy. This means more dividends.
Over the last several years, Starbucks upped its quarterly dividends on a regular annual basis. In recent history, the company’s been announcing dividend hikes in late October.
As mentioned, Starbucks stock is moving with the broader market in a correction that, considering where this market has come from, is not unreasonable trading action.
Status quo financial growth, share repurchases, and dividend hikes should work nicely for this global leader.
The stock market’s current correction is a very good reminder to do two very important things with your portfolio:
- reevaluate investment risk among all your holdings
- maintain a list of potential new buying opportunities that you wished you owned
Starbucks is like any other multinational. It has a lot of currency risk to deal with. But, the position still commands strong attention from institutional investors. If the company’s go-forward numbers don’t rock the boat too much, this remains a worthy investment for the next several years.