(Updated) Growth Still Possible at Starbucks
Starbucks (Nasdaq: SBUX) had an up ($62.00) and down ($43.04) year but currently resides in the higher end of that range. Not exactly a bargain price but I do believe there still is a profit to be made. Starbucks also sports a solid and recently steady profit margin of around 10%. What excites me about Starbucks is their growth in China and adaptation into the Chinese culture.
After reading up on Starbucks expansion into China I am very encouraged as to what the future will bring. Starbucks has adjusted their menu to the Chinese’s taste (ex: green tea) and the population has responded strongly. Also carrying around a Starbucks cup is seen as being a part of the middle class, something to strive for. Belina Wong, president of Starbucks China, said in an interview that Starbucks aims to roll out 800 new stores in the next three years to add to its existing fleet of 700. If this isn't growth I don't know what is. Starbucks has predicted earnings growth of 19% next year and I believe they can top this with good results from China. This gives them a Forward P/E of around 21, not cheap but attractive for a growing restaurant stock. Starbucks also plans on adding 3,000 new U.S. stores by 2017. With their recent political message on their coffee cups to come to an agreement on the fiscal cliff garnering so much attention, we can see they still have an ever-growing presence in America as well.
Recently Yum Brands (NYSE: YUM) reported that their same-store sales in China fell 6 percent in the 4th quarter. Was this because of the Chinese losing interest in western brands? Absolutely not, instead it was caused by a major government probe into the quality of KFC chicken after failing tests regarding antibiotics in their chicken. The Chinese were not happy and it’s going to take some ace marketing to get KFC back on the right track. Starbucks is good in the eyes of the Chinese; along with their adapting stores they also offer good careers. They have nice career paths, compensation, and work environments. It is always a plus to have happy employees.
The argument for Starbucks not succeeding has been proven wrong to me many times. People are definitely willing to pay for the experience, and also just simply for the product. It is a sort of an addiction that the younger generation loves, not only a place to hang out and do homework but somewhere to go through the drive-through. As the years go by Starbucks will continue to succeed because they have a loyal customer base that continues to expand as younger generation pass their views down. Competitors McDonalds (NYSE: MCD) andDunkin’ Brands (Nasdaq: DNKN) will continue to sell their cheaper coffee and fast food breakfast to some consumers who are looking to save. When hooked consumers keep coming back to Starbucks for the product they desire.
The bigger question, is now the time to buy? I can’t say for sure, a small dip would be nice but who knows if that will happen. I will continue to monitor Stabucks and look for a time to possibly buy in on their growing business.