Starbucks Corporation (SBUX) reports its numbers on Thursday, and investors can pretty much rely on another strong quarter.
SBUX stock has been growing both revenue and profits like clockwork, with revenue growth pacing about 16% this year and earnings per share projected to increase 19%. For FY2016, revenue is supposed to grow another 11% and and EPS should expand another 18%.
But the million dollar question is whether Starbucks earnings will keep up with expectations.
Starbucks stock has been churning higher steadily since 2009 with nary a blip. But Starbucks earnings have beaten estimates by just one penny across each of the last four quarters.
Bulls will contend this is proof positive that Starbucks knows how to manage expectations. But bears see an operation on the razor’s edge, with little room for error in Starbucks earnings.
After all, SBUX stock is up over 50% year-to-date in a troubled market and up 175% since the beginning of 2012 … how much more can it really run?
Starbucks Earnings Need U.S. Boost
For starters, don’t worry at all about weakness in China or the risk of unfortunate foreign exchange rates. Starbucks makes about 70% of its total revenue from the Americas, which is the big driver of growth lately.
In fact, the growth Starbucks has recently seen in its Americas segment has offset weakness elsewhere. For instance: Last quarter, overall same-store-sales were up 7% but the all-important Americas segment was up by 8%. That resulted in a record second quarter.
So the challenge now is to keep growing at a clip the Street has grown familiar with, as Starbucks earnings have been on a tear and shares have defied gravity for so long that eventually valuation has to be a concern.
Case in point: The forward price-to-earnings of SBUX stock is now over 33 — rich by any measure of the market, and particularly for a glorified restaurant stock.
That multiple makes the necessity of strong growth even more pronounced, particularly given recent cost increases. Starbucks has been spending big on its Mobile Order & Pay program, which recently expanded nationally and is meant to bring mobile payments in-house. There’s also continued expansion in stores, with 431 net new locations opening up last quarter and a continued push for more reach at home and abroad.
Balancing costs but investing in growth is tricky, but it’s even more delicate for a company that has such a small margin for error.
Can SBUX Stock Maintain Its Growth?
While it’s true that a miss would be pretty bad for Starbucks, CEO Howard Schultz is running a tight ship and the consistent outperformance of SBUX stock is testament to its staying power.
So while this upcoming Starbucks earnings report is admittedly pretty high stakes, there is no reason to think that the consistent success of the past several reports — or, in fact, that past several years — is going to fall apart here.
The broader market may not be able to defy gravity forever and that the “growthy” names like Starbucks may run out of runway as investors start to go a bit more risk-off.
But living in fear is no way to manage your portfolio.
Starbucks earnings should continue their track record of success in this upcoming quarterly report, and investors can keep holding SBUX stock with confidence.
There just aren’t many growth options in this market and Starbucks’ ability to grow the top line by double-digits consistently is not something to be taken lightly.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
