Starbucks stock analysis. Ticker: SBUX.
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Starbucks stock is now valued at 3.6 times revenue, 30 times earnings and 43 times free cash flow. And the stock also pays a dividend of 2.1%.
30 times earnings might seem expensive, but Starbucks has been a reliable performer. Revenue has grown at roughly 9% per year over the last 10 years with earnings per share increasing by roughly 12% a year.
That said, net income is yet to regain its 2019 peak and gross margins have fallen from almost 30% in 2017 to 27% today.
With a market cap of 125 billion and over 37,000 stores worldwide, it’s understandable to wonder how much more Starbucks can grow. But the company has at least 4 options for growth:
Despite already having 16,000 stores in the US, Starbucks still has room to open new stores in smaller cities as well as smaller format stores in bigger cities. And in a recent presentation, Starbucks said it expects to deliver 7-9% annual revenue growth and 15-20% earnings growth over the next few years.
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Join 9000+ investors: https://www.overlookedalpha.com
Starbucks stock is now valued at 3.6 times revenue, 30 times earnings and 43 times free cash flow. And the stock also pays a dividend of 2.1%.
30 times earnings might seem expensive, but Starbucks has been a reliable performer. Revenue has grown at roughly 9% per year over the last 10 years with earnings per share increasing by roughly 12% a year.
That said, net income is yet to regain its 2019 peak and gross margins have fallen from almost 30% in 2017 to 27% today.
With a market cap of 125 billion and over 37,000 stores worldwide, it’s understandable to wonder how much more Starbucks can grow. But the company has at least 4 options for growth:
Despite already having 16,000 stores in the US, Starbucks still has room to open new stores in smaller cities as well as smaller format stores in bigger cities. And in a recent presentation, Starbucks said it expects to deliver 7-9% annual revenue growth and 15-20% earnings growth over the next few years.
#stocks #investing #stockstobuy #overlookedalpha
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NewsTranscript
00:00 Starbucks just reported record sales and the stock price barely moved. At the latest price
00:05 the company now has a market cap of $115 billion. It's got $4.3 billion of cash and investments
00:11 and $13.5 billion of debt so the enterprise value is $125 billion. Revenue in the latest
00:17 quarter was a record $9.2 billion which means the company has produced $35 billion of revenue
00:23 over the last 12 months, $3.8 billion of net income and $2.9 billion of free cash flow.
00:29 Based on these numbers Starbucks stock is now valued at 3.6 times revenue, 30 times
00:34 earnings and 43 times free cash flow and the stock also pays a dividend of 2.1%. 30 times
00:40 earnings might seem expensive but Starbucks has been a reliable performer. Revenue has
00:45 grown at roughly 9% per year over the last 10 years with earnings per share increasing
00:50 by roughly 12% a year. That said net income is yet to regain its 2019 peak and gross margins
00:57 have fallen from almost 30% in 2017 to 27% today. With a market cap of $125 billion and
01:04 over 37,000 stores worldwide it's understandable to wonder how much more Starbucks can grow.
01:10 But the company has at least four options for growth. One, despite already having 16,000
01:15 stores in the US, Starbucks still has room to open new stores in smaller cities as well
01:20 as smaller format stores in bigger cities. Two, Starbucks has plenty of room to expand
01:25 in international markets. The Chinese segment reported exceptional growth this quarter with
01:30 revenue up 51% year over year. As noted by QSR the company's ambitious plans equate
01:37 to a new store opening in China every 15 hours. Three, even without store openings Starbucks
01:44 can improve earnings by introducing new product lines and increasing prices. Cold beverages
01:49 and snacks have been key revenue drivers in recent years. Four, even without introducing
01:54 new products Starbucks can use its cash flow to buy back shares. In February the company
01:59 reinstated its buy back plan, penciling in $20 billion of buy backs through 2025. And
02:05 in a recent presentation Starbucks said it expects to deliver 7-9% annual revenue growth
02:11 and 15-20% earnings growth over the next few years.
02:14 If you assume that Starbucks can grow earnings 15% a year for the next five years and then
02:19 it trades at a 25 times multiple, the share price would be worth $167 in five years time.
02:25 Include dividends and the annualised return works out to just over 12% a year.
02:30 All that said there are some risks to owning Starbucks and one of the biggest may be its
02:34 brand. The company has had issues with labour unions in the past and it's only natural
02:38 that as a company gets bigger and more diversified it loses some of its brand power. Rival Dutch
02:43 Bros is tiny compared to Starbucks but it's growing fast and has plans to scale to 1,000
02:49 stores by 2025.
02:50 Overall Starbucks is unlikely to achieve huge growth in the US and so a lot comes down to
02:55 China. The company seems to be doing well over there so I think the stock should continue
03:00 to provide decent returns and that's why I give it a bullish rating. But these are
03:04 my personal opinions not financial advice and I hold no position in the company. For
03:08 more detailed investing ideas make sure to visit our website overlookedalpha.com