Bottom Line on SBUX Stock
While Starbucks is currently trying to make a run on its 2015 highs around $63, I think shares are about to stall out. I doubt it will go much higher in the near-term so even selling some covered calls several months out may squeeze more upside out of your long position than just holding it.
But don’t sell Starbucks stock if you own it.
Starbucks 3.0 is going to do very, very well. See, Schultz isn’t an operator so much as an innovator. He has done very well when it comes to innovation. When he emerges with his concepts and they start rolling it out, that’s when Starbucks may re-enter its growth phase.
Right now, though, SBUX stock trades at nearly 30 times net income. While analysts see 15% annualized growth over the next five years, and Starbucks deserves a premium for its cash flow and brand name, I think 30x is too expensive given the phase it’s about to enter. So I wouldn’t buy the stock here.
But I think the stock market as a whole is overvalued, and believe a true correction is coming. If it does, SBUX will take a haircut. Ideally, something around 20% to 30% would make things a whole lot more interesting for true value buyers.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,600 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he did not hold a position in any of the aforementioned securities.