Starbucks Corp (SBUX, Financial) has recently experienced a daily gain of 10.28%, contrasting with a slight 3-month loss of -0.18%. With an Earnings Per Share (EPS) (EPS) of 3.28, the question arises: is Starbucks' stock modestly undervalued? This article provides an in-depth valuation analysis of Starbucks, encouraging readers to delve into the financial intricacies of this global coffeehouse chain.
Introduction to Starbucks Corp (SBUX, Financial)
Starbucks is one of the most renowned restaurant brands worldwide, operating nearly 36,000 stores across more than 80 countries as of the end of fiscal 2022. The company's operations span three segments: North America, international markets, and channel development (grocery and ready-to-drink beverage). Starbucks generates revenue from company-operated stores, royalties, sales of equipment and products to license partners, ready-to-drink beverages, packaged coffee sales, and single-serve products. Currently trading at $100.74 per share, Starbucks' market cap stands at $115.40 billion, indicating a modest undervaluation according to GuruFocus' valuation method.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it is likely overvalued, implying poor future returns. Conversely, if it's significantly below the GF Value Line, it may be undervalued, suggesting higher future returns. Given Starbucks' current price and market cap, the stock appears to be modestly undervalued.
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Starbucks' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing shares. Starbucks has a cash-to-debt ratio of 0.15, ranking worse than 71.3% of 345 companies in the Restaurants industry. Based on this, GuruFocus ranks Starbucks's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over the long term. Starbucks has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $35 billion and EPS of $3.28. Its operating margin of 14.44% is better than 87.93% of 348 companies in the Restaurants industry. Overall, GuruFocus ranks Starbucks's profitability as strong.
Growth is a crucial factor in a company's valuation. Starbucks's 3-year average revenue growth rate is better than 76.76% of 327 companies in the Restaurants industry. However, Starbucks's 3-year average EBITDA growth rate is 2.1%, which ranks worse than 50.91% of 275 companies in the Restaurants industry.
Return on Invested Capital (ROIC) vs. Weighted Average Cost of Capital (WACC)
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can evaluate its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Starbucks's ROIC is 14.79 while its WACC came in at 8.84.
Conclusion
In conclusion, Starbucks' stock seems to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 50.91% of 275 companies in the Restaurants industry. For more information about Starbucks stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
