It’s been a tough year for shareholders in Starbucks Corporation (NASDAQ:SBUX), but after a big month, SBUX stock is on track to finish 2016 on a hot streak.
Whatever its struggles, SBUX stock appears to have at long last bottomed. Even better, it’s in an uptrend with some decent technicals at its back.
Shares of the Seattle-based coffeeshop have gained around 11% since the first days of November. Along the way, SBUX has overcame resistance at its 50- and 200-day moving averages, both of which now point in bullish direction.
Note that SBUX was bottled up at its 200-day MA twice in the past three months before finally squeaking through last week. Tacticians now look to that key level for support. What’s more, the MACD suggests that momentum is building, while the relative strength index, while elevated, doesn’t say that shares are dangerously overbought.
This is the best Starbucks stock has looked pretty much all year. Investors, it appears, are giving the company the benefit of the doubt.
SBUX Stock Will Rise Again
Macroeconomics have been tough on Starbucks and it’s not like there’s any reason to expect them to lighten up soon. Inflation and devaluation in some major Latin American markets are taking a toll on results in that part of the world. Sluggish economic growth across Europe and the looming impacts from the Brexit vote are weighing on operations across the Atlantic. A weaker yen in Japan is also giving SBUX fits in Asia.
The biggest worry, however, remains the U.S., which is the company’s biggest market. Investors are rightly concerned that the struggle with same-store sales stateside could become a permanent condition.
Click to Enlarge After all, SBUX has now missed its U.S. sales target in four consecutive quarters.
In the most recent three-month period, U.S. same-store sales in the quarter rose 4%, compared with analysts’ projections for a 4.8% increase. CEO Howard Schultz urged analysts to look at Starbucks’ long-term strategy rather than quarterly sales fluctuations.
He has a point. SBUX is counting on China for its next big wave of growth and it certainly has the potential to deliver. Starbucks plans to double the number of stores there to 5,000 over the next five years. Keep in mind that China same-store sales rose a whopping 6% in the most recent quarter. That should put some of the market’s anxiety to bed.
Analysts are also increasingly optimistic about the company’s technological endeavors. It’s Mobile Order & Pay service lets customers order ahead for pick up. So far results are encouraging. The innovation accounted for 6% of U.S. transactions last quarter, up from 5% in the previous quarter.
Bottom Line on SBUX Stock
The wider restaurant sector is in something of a funk these days, so SBUX stock is hardly alone in its disappointing 2016 showing. Considering its history, it makes sense to give SBUX stock the benefit of the doubt as it navigates through this soft patch. Macro issues are particularly frustrating because there’s so little a company can do in response. Fortunately, they also tend to run their course.
Meanwhile, Starbucks stock offers a pretty good bargain on the valuation side of things: Shares change hands at 23 times forward earnings. That’s hardly a fire-sale price, but it’s not crazy for a company with a projected compound annual growth rate of 17% for the next half-decade. That forward price-to-earnings multiple is also well below SBUX’s five-year average of more than 27, according to data from Thomson Reuters Stock Reports.
Starbucks’ ongoing rally suggests that sentiment is improving on the name. Considering what it has to offer in terms of global expansion, buybacks and dividends, this could be a good time to pick up SBUX at a reasonable price.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
