Starbucks Corp. (SBUX, Financial) ended 2016 on a red note, as the stock was down approximately 8%. Moreover, the stock is off to a bad start this year, as it is down nearly 1% year to date, but the disappointing performance of the coffee company in the prior year does not mean that its growth is over.
The company recently reported another record first quarter. In the first quarter, the company reported earnings per share of 52 cents, in line with the analyst estimate. The company’s revenue came in at $5.73 billion, missing the consensus by $120 million. However, that figure represents a surge of 6.7% year over year.
Moreover, Starbucks is aggressively focusing on expanding its loyal customer base around the globe. Currently, the company consist of 13 million active members, out of which 7.5 million active members are from China and Asia-Pacific. In the most recent quarter, the company added 1.8 million Starbucks reward members in the U.S. year over year.
Nowadays, more and more consumers are health conscious, avoiding sugary and carbonated drinks which results in increasing consumption of coffee. In the next five years, the demand for coffee is projected to rise approximately 25% which represents a good opportunity for Starbucks.
As a matter of fact, China plays a significant role in the company’s future growth as the active member base in China is rising at a decent rate. Most important, it looks like the company is headed in the right direction to get a strong hold in China.
Throughout the past year, the company inaugurated around 1,000 new stores in China which escalated its store count to approximately 2,500 stores in China alone. Furthermore, it is on its way to opening 5,000 stores in China by 2021.
The company's aggressive focus on expanding its footprint in China looks promising as China’s middle-class is continuously growing and getting richer at a swift pace. On top of this, the Chinese are still developing a taste for coffee. As a result, the demand for Starbucks will continue to grow at a rapid pace in the years ahead.
Apart from this, Starbucks CEO Howard Schultz is planning to build a new concept around the company’s Roastery model. Schultz is focusing on innovating Starbucks' products, design and development of its Reserve Roasteries worldwide.
Summing up
Starbucks disappointed stockholders in 2016, but the company still has a massive upside potential. China continues to represent a huge growth opportunity for the company as the fiery growth of China’s evolving middle-class has brought extensive economic change as well as social transformation, and it is not displaying any signs of slowdown.
Moreover, the company also partnered with Tencent (HKSE:00700, Financial) which owns WeChat messenger. Due to this, consumers can now pay for the products via a built-in wallet, enabling them to avoid standing in a line for a long time.
As an outcome, long-term stockholders should ignore the short-term pains, as Starbucks’ long-term prospects looks optimistic.
Disclosure: No position in the stocks mentioned in this article.
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