GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Why Starbucks' Outstanding Run Should Continue Going Forward

August 21, 2014 | About:
rsconsultant

rsconsultant

0 followers

Starbucks (SBUX) is doing well. For a long time, critics have viewed the stock climb and assumed that this well-known organization couldn't possibly be an extraordinary investment. Despite the fact that Starbucks is extremely well known, there are no less than three reasons for investors to continue purchasing shares.

Just like the past times

Here's an organization that is so successful that most Americans are promptly mindful of how well Starbucks is getting along. The uplifting news is that investors in Starbucks today seem to be getting an extraordinary development story, just like in the past.

I'm not suggesting that Starbucks is without rivalry, and actually some of the organization's competitors are performing strongly. For instance, Dunkin' Brands (DNKN) has been performing extremely well, with the organization's late earnings per share hopping 24%. Despite the fact that some individuals don't consider them an immediate contender, Panera Bread (PNRA) offers soups and sandwiches, as well as a strong lineup of espresso and different beverages.

What's more, some would make the contention that Green Mountain (GMCR) is also a danger to Starbucks, as customers can blend numerous beverages at home that they otherwise may have purchased from the espresso purveyor. For those that suspected that Green Mountain was a trend, the organization's earnings per share increase of 58% in the last quarter should calm the doubters. Indeed with the greater part of this rival, Starbucks reported a 28% increase in earnings per share, and investors taking a gander at the Starbucks story need to like what they see.

Consistent natural development

One of the best ways to measure how a restaurant idea is getting along is by taking a gander at the organization's same-store sales figures. By this measure, there truly is no rival to Starbucks' performance, as the organization reported an 8% increase in same-store sales. Dunkin' Brands reported respectable same-store sales development of 4% at the Dunkin' Brands domestic chain, yet was obviously much weaker than Starbucks' performance.

While Panera Bread is an incredible development story, the organization's same-store sales increase of 3.8% in the last quarter isn't even a large portion of what Starbucks could do. While Green Mountain doesn't report same-store sales, the organization's 11% revenue development comes in lower than Starbucks' 13% general increase. Regardless of where you look, you can see that Starbucks is performing like a fast development stock.

The worldwide open door

Numerous analysts allude to Starbucks as a worldwide organization. Nonetheless, its development is still mostly based on domestic operations. As of this last quarter, Starbucks created more than 70% of its revenue from domestic operations. With just 30% of revenue originating from overseas, Starbucks still has room to develop from global expansion.

While Starbucks has to stress over Dunkin' Brands on the global scene, Dunkin's 1.7% increase in same-store sales globally came in far lower than the 7% increase at Starbucks. Likewise, globally, Starbucks doesn't need to stress over companies like Panera Bread or Green Mountain Coffee because they don't have a presence outside of the U.S. of any significance.

New development options

While it's impressive that Starbucks can increase sales both domestically and globally, investors need to see that the organization can develop past its customary espresso offerings.

The extraordinary news for investors is that Starbucks has no less than three immense development opportunities going ahead. First, the organization's extension of its Green Mountain understanding is an open door that some thought had passed its prime. With Green Mountain reporting a 21% increase in single-serve packs, unmistakably customers like the K-Cup system. Given Starbucks' position as the main premium espresso in the system, Starbucks should keep on profiting from this partnership.

Second, Starbucks' proceeded with take off of La Boulange pastry shop goods should permit it to go toe to toe with Dunkin' Brands and Panera Bread's nourishment options. Third, the Teavana affix is expected to develop quickly throughout the following few years. In the event that the Teavana chain performs anyplace close as well as the conventional Starbucks stores, this could be a massive development motor for the organization.

Conclusion

Long story short, Starbucks' development story is a long way from being done. In spite of the fact that shares aren't modest at in excess of 30 times anticipated earnings, the organization's almost 20% normal EPS development makes this a reasonable valuation. The organization's immense open door overseas and the expansion into new businesses should permit Starbucks to keep conveying fast development for a long time to come.


Rating: 5.0/5 (1 vote)

Voters:

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK