Starbucks Corporation Shares Hit A Fork In The Road
Starbucks Corporation (NASDAQ: SBUX) shares may have just bottomed out for this sell-off or are on the verge of bottoming -- so the bulls hope.
It is a big battle going on between those who feel the stock is too pricey, given its growth rates and those who note all of the positive aspects of the Starbucks story.
What The Bulls See
- Steady positive levered free cash flow of more than $1.8 billion annually.
- A clean balance sheet (current ratio of 1.16 and debt-to-equity of 40 percent).
- Good management effectiveness ratios (return on assets of 16.78 percent).
- Nice revenue and earnings growth projections of 10.9 percent and 17.9 percent, respectively.
- The stock managed to hold up above key support at $74 thus far, making it a real possibility that it will begin a new up move soon.
What The Bears See
- The stock is priced for perfection with a price-to-book of 11.55 and a price-to-earnings ratio of 25, which is fairly high compared to the growth projections in the teens.
- Any close below $73.75 would be a technical breakdown for the stock and that is only a point or so away from current levels.
What The Charts Say
Technicians note that Starbucks may have just completed an “abc” correction to the downside when it bottomed this week at right around $74 on a closing basis. From here they note that Starbucks should, if the bulls maintain control above $73.64, rally up to approximately $90 (which is a Fibonacci price projection). If the $73.64 support level fails, then Starbucks may be headed down to the $71-$72 range.
Starbucks could be setting up for a nice rally as long as $73.64 holds as support. The bulls are entering the stock now in anticipation of that rally. However, a flurry of stop-losses will be triggered if that level is broken on the downside.
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