Will Buying Stock in Starbucks Give You a Nice Buzz?

With shares of Starbucks (NASDAQ:SBUX) trading at around $53.64 is SBUX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

You really messed up this time, didn’t you? This pertains to SBUX selling in the single digits in 2009. Imagine having bought the stock then. What would you be doing now? Don’t worry; you’re not alone. If only we all believed in the premise to buy when there’s blood in the streets. What’s done is done, and all we can do now is look ahead.

Starbucks has a reputation for great growth and okay profitability. At the same time, the stock has rewarded its investors through the years. A 1.60% yield isn’t anything to get excited about, but you may get excited about new opportunities.

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Starbucks has a few new products. This will likely have more of an impact on existing customers. The novelty of the coffee shop craze has worn off. Almost every caffeine fiend has already chosen his or her favorite destination for a daily fix. On the other hand, Starbucks regulars seem to be willing to try new things, which may bode well for Starbucks. Two of these products will be of the use-at-home variety (i.e. Verismo, K-Cups.)  

One of the biggest moves by Starbucks has been the acquisition of Teavana. With the tea industry seeing double-digit growth, how could Starbucks not get involved? It’s also a logical growth opportunity for the company. In addition to that, it matches their emerging market expansion. Tea is more popular in Asia, Eastern Europe, and the United Kingdom than in the United States, but Starbucks has the potential to grow the market here.

As far as analysts go, 21 are on the Buy side, nine recommend Hold, and zero are on the Sell side. While listening to one analyst would be risky, listening to 21 out of 30 that agree isn’t such a bad idea.

E = Equity to Debt Ratio is Strong

The debt-to-equity ratio for Starbucks is strong. The same can be said for the balance sheet. Let’s see how competitors McDonald’s (NYSE:MCD) and Dunkin Brands (NASDAQ:DNKN) stack up in these areas.  

Debt-To-Equity

Cash

Long-Term Debt

SBUX

.11

$2.04 Billion

$550 Million

MCD

.96

$2.18 Billion

$13.26 Billion

DNKN

5.98

$166 Million

$1.88 Billion

 

T = Technicals on the Stock Chart Are Strong

Starbucks has outperformed McDonald’s and Dunkin Brands over the past three years.

1 Month

Year-To-Date

1 Year

3 Year

SBUX

1.19%

12.99%

18.39%

147.7%

MCD

.61%

-10.91%

-6.60%

54.40%

DNKN

-.06%

26.99%

28.17%

-1.67%

 

At $51.24, Starbucks is currently trading slightly higher than its 50-day SMA of $49.24. It’s trading slightly higher than its 100-day SMA of $49.16. And it’s trading very close to its 200-day SMA of $51.60.

 E = Earnings and Revenue Are Steady

Starbucks isn’t growing by leaps and bounds, but it’s still growing, which can’t be said for many companies in today’s world.

2008

2009

2010

2011

2012

Revenue ($)in billions

10.38

9.78

10.71

11.70

13.30

Diluted EPS ($)

.43

.52

1.24

1.62

1.79

 

Quarterly earnings and revenue have been sporadic, but not disappointing.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

3.03

3.43

3.20

3.30

3.36

Diluted EPS ($)

.47

.50

.40

.43

.46

 (go to the next page for my conclusion)…

T = Trends Support the Industry

People love their caffeine these days, especially Americans. We live in a society where work is a top priority whether we realize it or not. In order to get by, we need our energy boosts. It’s really more about a habit that you become comfortable with, and in the case of Starbucks, it’s also about taste.

Starbucks is growing internationally, and it’s now getting involved in the tea business. These are good signs.

Conclusion

While there are a ton of positives we can look at for Starbucks, considering the Fiscal Cliff situation, it would be wise to see what happens before getting involved. Imagine having another opportunity to buy Starbucks in the single digits? It’s a long shot, but it’s possible if we go off that cliff. Without the Fiscal Cliff, Starbucks would be highly recommended, but based on the circumstances it’s a WAIT AND SEE.  

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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