Starbucks Corporation (NASDAQ:SBUX) is underperforming a hardly booming stock market, but it’s still too soon to give up on SBUX stock.
After all, we’ve been through this before.
SBUX stock is off 7% for the year-to-date, while the S&P 500 is up 7%.
Take a step farther back and you’ll see that Starbucks stock hasn’t really gone anywhere in a year. Lackluster sales, particularly in the U.S., are to blame.
Starbucks has never been immune to a more cautious consumer. The fact that they’re paring back on SBUX purchases even as discretionary income is up is troubling to some observers. But the coffee chain always bounces back.
As Morningstar analysts note:
“This is not the first time Starbucks has faced an uneven consumer environment in the United States over the past several years, and each time traffic was pressured, the firm found ways to adjust. While the current weakness may extend over the next few quarters, we believe management’s implied goal of returning to 5% comparable sales growth is doable in the fourth quarter as we move past the loyalty program transition and as other technology and menu drivers contribute more.”
Innovation and Valuation Make SBUX a Market Beater
The early returns on digital initiatives like mobile order and pay, delivery services and new offerings like Teavana tea are poised to reignite sales in the Americas. As for overseas weakness, partly that’s driven by sluggish economic growth in key markets, but long-term investors know to ignore such cyclical headwinds.
At 26 times forward earnings, Starbucks stock might look pricey, but then, it always looks pricey. Over the last five years, SBUX’s average forward price-to-earnings multiple stands at 27, according to data from Thomson Reuters Stock Reports.
The long-term growth forecast of roughly 19% per annum adequately justifies such a premium.
SBUX is going through one of its periodic periods of disappointing performance. Don’t let that sour you on what’s been a long-time outperformer. Starbucks has been a market-crusher in the past. It will be one again.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
