Market Overview

Where Will Longs Re-Enter Starbucks?


Starbucks Corporation (NASDAQ: SBUX) shareholders have been rewarded in recent years with a stock that has moved from $7.06 in 2009 to nearly $100 earlier in March. That is a staggering return for any stock, but especially for a consumer discretionary stock with seemingly finite growth prospects.

The company's management has consistently delivered, though, in creating new revenue streams via same-store efforts as well as by opening new locations globally.

Can they continue to do so? Is the company priced for perfection?

Let's take a look.

Related Link: Bristol-Myers Squibb Is Re-Testing Its Breakout Level

What The Bulls See

  • Net profit margins of 14.76 percent that spin off over $1.62 billion in positive levered free cash flow annually
  • Nice management effectiveness metrics, including a return on assets of 16.17 percent and a return on equity of 45.47 percent
  • Solid good balance sheet metrics, including a debt-to-equity ratio of 33.86 percent and a current ratio of 1.28
  • An enterprise value of $71.42 billion that slightly trumps the market capitalization of $71.28 billion
  • A price-to-sales ratio of only 4.19
  • An annual dividend ratio of 1.3 percent

What The Bears See

  • Total debt of $2.08 billion that slightly exceeds the total cash of $1.95 billion
  • A price-to-book ratio of 12.35
  • A PE ratio of around 25 based on next year's estimates, which seems a bit rich compared to estimated growth rates in revenues and EPS of 11.5 percent and 17.9 percent, respectively

The Technical Take

Technicians note that Starbucks may finally be giving aspiring longs a chance to enter the stock at more desirable levels than at the persistently "overbought" levels shares have traded near in the past. It appears to technicians that the first desirable entry point will be down at the very short-term uptrend line at $87.53.

That corresponds with the weekly close from the last week in January.

Resistance above the recent peak of $99.20 comes in at the upper edge of the long-term uptrend channel near $102.

Starbucks seems to be any equity investor's dream stock, but much of that depends on when and at what price that investor enters the stock. Timing long-side entries to correspond with uptrend line support seems to be the best strategy for Starbucks traders.

Stock chart: 
Stock chart

Related Articles (SBUX)

View Comments and Join the Discussion!

Posted-In: Starbucks Corp.Long Ideas Technicals Movers Trading Ideas