by winston » Fri Mar 23, 2018 9:26 pm
not vested
Sideways Stocks That Aren’t Worth Your Time: Starbucks Corporation (SBUX)
Starbucks Stock Bulls Ignoring China Risks
Starbucks Corporation (NASDAQ:SBUX) is arguably everyone’s favorite coffee shop. But SBUX stock has been far from a favorite on Wall Street.
Over the past 2 years, while the S&P 500 has partied its way to 30%-plus gains, SBUX stock has bounced, dropped, and overall is down about 2%.
That is a pretty bad showing for SBUX stock over the past 2 years. And its because everyone’s favorite coffee shop is starting to lose its luster.
There has been a boom in indie coffee shops. (That source is about the UK, but the same trend can be see in the U.S. and elsewhere) These coffee shops are successfully drawing the trendy crowd away from Starbucks by painting themselves as “local and homey” versus Starbucks’ giant corporate feel.
The indie coffee shops are winning. And Starbucks is losing.
The numbers show this. Starbucks used to be a staple for consistent and strong comparable sales growth. The company once had a 25 consecutive quarter streak of comparable sales growth of 5% or greater.
But that streak was broken in mid-2016. SBUX reported comparable sales growth of 4% in the third quarter of 2016. Ever since, comparable sales growth has not only been stuck below 5%, but its also come all the way down to 2% over the past 2 quarters.
Worse yet, transaction growth is flat. That means SBUX isn’t driving any new traffic through its doors. Again, this represents a radical change from SBUX’s historical norms. During its 25 quarter streak of 5% and up comps, traffic growth was always positive.
All in all, SBUX is staring at a new era of substantially slower growth over the next 5 years thanks to the rise of indie coffee shops and a more equal playing field in the retail coffee game. But SBUX stock still trades at 23-times forward earnings, which is largely in-line with its historical average.
That doesn’t make sense. Valuation is out of whack with the 5-year growth outlook. Therefore, SBUX stock could very likely continue its sideways run.
Source: Investor Place
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