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What The Luckin Coffee IPO Means For Starbucks

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What The Luckin Coffee IPO Means For Starbucks

China's Luckin Coffee Inc. will trade for the first time on a public market Friday, which could impact rival Starbucks Corporation (NASDAQ: SBUX)'s performance in the Chinese market.

A Possible Breakout After Years Of 'Nothing'?

Shares of Starbucks are up more than 20 percent since the start of 2019 and 40 percent over the past year, MKM Partners Chief Market Technician JC O'Hara said during a Friday CNBC "Trading Nation" segment.

Investors shouldn't "be afraid" of the momentum, especially when taking a look back at the stock's five-year chart, he said. 

Starbucks' stock has "pretty much done nothing" over the past four years has traded between $52 to $64 per share, the technical analyst said. The narrow $12 trading range over the past few years has since been broken, with the stock jumping to all-time highs this week.

"When stock charts like these hibernate for an extended period of time and finally break out, that breakout is powerful and it can continue a lot longer than many people think is possible," O'Hara told CNBC.

Cautious On Barriers To Entry

Starbucks has one large risk that may be overlooked by investors in that the barriers to entry "aren't very high," Point View Wealth Management's John Petrides said during the same CNBC segment.

The Seattle-based coffeemaker's valuation stands at nearly $100 billion, and the Street is expecting earnings growth of 25 percent annually over the next two years, he said. 

Expectations for "pretty high" earnings growth coupled with minimal "margin safety" suggest the possibility for Starbucks' stock multiple to move lower, Petrides said, adding that it remains unclear if Starbucks can compete against Luckin.

Related Links:

The Luckin Coffee IPO: What You Need To Know

Starbucks Continues Grande Growth In China, But Flat US Traffic Hurts Quarter

Latest Ratings for SBUX

DateFirmActionFromTo
May 2019MaintainsBuyBuy
Apr 2019ReiteratesBuy
Apr 2019MaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for SBUX
View the Latest Analyst Ratings

Posted-In: China CNBC coffeeAnalyst Color News IPOs Analyst Ratings Media Best of Benzinga

 

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