By most measures, Starbucks Corporation (NASDAQ:SBUX) is an organization that’s doing just fine. Late last week, SBUX released its fourth quarter of fiscal year 2016 results, beating its earnings per share target of 55 cents by a penny. This capped off another year in which Starbucks stock either met or exceeded profitability expectations.
It’s familiar territory for the company, with its last miss coming in Q1 of FY 2014. But despite the consistent financial performance, it’s in the markets where SBUX stock is lagging.
Signs that the coffee giant was going to encounter softness were evident. For one thing, earnings season isn’t particularly exciting for SBUX stock. Covering analysts have got it down to a science. Even that miss from almost three years ago wasn’t a big deal.
The problem with this consistency is that Starbucks stock just doesn’t generate the excitement it once used to. If shares aren’t performing, the current dividend yield of 1.8% is hardly a draw. Additionally, the dramatic results from the 2016 election will put several stocks under the gun.
Starbucks Stock Needs a Caffeine Boost
And let’s face facts here — people frequent their local SBUX store to get “jacked.” The same could be said about its investment appeal. Since 1992, the lifetime average return for Starbucks stock is nearly 31%, inclusive of this year. That’s an impressive 25 year run that’s difficult for anyone to match. In fact, the iconic McDonald’s Corporation (NYSE:MCD) got close, but has never been able to pull off the feat.
But right now, the Starbucks stock price isn’t doing jack — hence, the dilemma.
It’s indeed a strange situation. Again, on paper, SBUX stock should be having another solid year. Annual revenues are trending higher. Margins up and down the income statement are improving. Inventory is flying out of the back room and into customers’ hands.
This is a company that owns an addictive product and they know it. So why hasn’t it positively impacted the Starbucks stock price?
Year-to-date, SBUX stock is down over 9%. That’s not a reason to panic due to its robust history in the markets. At the same time, returns have averaged 34% from 2010 through 2015. Shares have also returned more than 27% in the volatile 2000s decade. So a near double-digit percentage loss for the Starbucks stock price stands out, especially for a company that prides itself as basically a consumer staple.
The 2 Faces of SBUX Stock
There are two ways to look at this. First, SBUX stock is having a bum year in what is almost always a great, not merely good, investment. Every superstar needs a break, and this is a company that deserves the benefit of the doubt.
Additionally, the king of baristas is making aggressive inroads internationally, while also respecting other cultural trends. For example, tea is big in Asia, and there’s no point in SBUX fighting the current.
But the other perspective isn’t so pleasant. Against the broader food and beverage services industry, SBUX stock is conspicuously sickly. Dunkin Brands Group Inc (NASDAQ:DNKN), Restaurant Brands International Inc (NYSE:QSR) and Panera Bread Co (NASDAQ:PNRA) are performing better than the coffee giant. The former two are up double-digits YTD, while PNRA is only off 3% for the year despite dying in September.
Click to Enlarge
It’s Not the End for the Starbucks Stock Price
Even after Starbucks stock beat its EPS consensus estimate, the trend was still pretty ugly. Sure, it got a nice size pop in the days following the report. However, SBUX is not building the kind of positive momentum that would inspire confidence among shaky investors. Again, those yields aren’t a selling point, and the technical risk makes its mention somewhat of a joke. Furthermore, the volatility of the broader markets makes any play on questionable stocks, well, questionable.
Where I would disagree with the bears is that SBUX stock isn’t a perpetual short play. Look at the history of its returns. With only one exception, shares have never produced back-to-back losses. The exception is 2007 and 2008, which were obviously rough years for everyone.
You have to play the odds. A bearish play might work, but if you go that route, it should be a quick in-and-out. The Starbucks stock price is simply too resilient.
So where to go from here? You have to concede 2016 as a loss. For most investors, that means letting the volatility in SBUX stock ride out. I wouldn’t play the hero and bet against the current bearish tide.
But for the bulls, 2017 is right around the corner. Starbucks stock has a proven tendency of bouncing back from tough losses, and there’s little reason to doubt it won’t do the same next year.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
