Why Starbucks Corporation (SBUX) Stock Is Far More Attractive Than Before

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Shares of Starbucks Corporation (NASDAQ:SBUX) have been a serious disappointment for many investors. Since late-2015, SBUX stock is basically flat. That’s not what investors had come to expect from this big-time growth stock.

Why Starbucks Corporation (SBUX) Stock Is Far More Attractive Than Before
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But there are a number of reasons to consider owning SBUX now that it’s trading a lot better.

The big culprit behind Starbucks’ struggling stock price has been comp-store sales. The company had consistently put up 5% or better U.S. comp. results. But for the past several quarters, it hasn’t been able to hit that mark.

Starbucks: Comparable-Store Sales

Part of the problem has been its Mobile Order & Pay platform. By ordering online, customers just have to pop into a Starbucks to pick up their order. But in some locations, this can account for more than 20% of orders. As a result, it has made some SBUX stores a “mosh pit” during peak hours.

On the last conference call, management said it’s rapidly implementing new solutions and comps are (thankfully) already on the rebound. Also consider two other important factors: Unicorns and Frappuccinos (never thought I’d say that).

The Unicorn drink created quite a buzz on social media and no doubt drove sales of the limited-time drink. Second, Starbucks’ Frappuccino Happy Hour should drive solid sales at the stores as well.

The fiscal third-quarter will be reported in July, but last year Q3 results disappointed investors. The Frappuccino Happy Hour, which is usually a strong driver of sales, disappointed as Starbucks made big changes to its loyalty program at the same time. This confused customers and caused a hiccup in sales. Additionally, SBUX started recording traffic and transactions differently, which made the results appear worse over the past three quarters.

Now that’s all behind us starting this upcoming quarter.

The Dividend

SBUX Stock, Starbucks, SBUX, Dividend, SBUX dividend, Starbucks Dividend
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Source: Stockcharts.com

On April 5, 2010, Starbucks paid its first quarterly dividend of 5 cents per share on a split-adjusted basis.

Pretty impressive, right?

While the initial payout may not have anyone’s jaw laying on the floor, the rate in which the company has upped that payout is a bit more noteworthy. In November 2016, SBUX stock paid a 25 cents dividend, a 25% increase from its prior dividend of 20 cents per share. Since its first dividend through its most recent, the company’s compound annual growth rate is more than 26% when it comes to dividend increases.

It’s one reason why we call it a Future Blue Chip.

SBUX in China

In China, Starbucks simply can’t expand fast enough. Sometimes investors miss catalysts like this because they’re not there to witness the success. But at Starbucks’ rate, China will be a bigger market than the U.S. — and that’s saying a lot.

SBUX is opening 500 stores a year, or about one every 15 hours. Stop and think about that for a minute. Then consider that management said it expects that rate to continue for “decades to come.” The company’s comp-store sales came in 7% for the region last quarter.

The growth here is impressive and it’s not surprising given that China will soon have a middle class that is twice the size of our entire country’s population. The potential here is astronomical.

Most importantly, Starbucks understands culture. As a result, people want to work there. They want to have careers with SBUX and they are proud. When you create buzz and excitement around a product and a workplace, you have a goldmine.

Trading SBUX Stock

Finally, there’s the stock price.

It took a long time for Starbucks to hit new highs, but after 20 months, it finally happened. That’s been a long time for shareholders — and I should know.

SBUX Stock, Starbucks, SBUX
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Source: Stockcharts.com

While the latest rally to $65 felt overdone, it might not be long before the stock is back there. But will it get caught up in the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) selloff?

The ETF fell 2.5% Friday and another 1% Monday. Stocks like Apple Inc. (NASDAQ:AAPL) are down about 7% in two days while Nvidia Corporation (NASDAQ:NVDA) fell more than 11% from its highs Friday.

SBUX stock barely budged Friday, despite being a top-20 holding in the QQQ ETF. But felt the heat on Monday.

SBUX stock is no longer overbought as determined by the relative strength index (RSI). The purple circles ahead though do show that it was ahead of its skies at $65. A high RSI usually precedes a pullback. As does an extended MACD (down below, orange circles).

Luckily, SBUX stock has plenty of support between $60 and $62, as seen by the black, orange and blue lines. Even with the recent pullback, the Starbucks rally has done some really constructive work to the bull case.

Final Thoughts on Starbucks

Starbucks will report earnings in about five weeks. Plenty can happen in the meantime. Shares may trade higher in anticipation of a strong quarter. They could get drilled if the QQQ selloff is just the tip of the iceberg.

Investors can start a position near current levels. If they want a low-risk arrangement, they can use a stop-loss based on the levels we just discussed. If this is a not-so-great quarter, I honestly believe it will be the last.

Starbucks management is great at what they do. It sounds like they have a solution for comp-sales and if so, this stock could really fly. If it pulls back, I will consider buying more.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, held a long position in SBUX and is short the June $65 call options against his position.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/starbucks-corporation-sbux-stock-more-attractive/.

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