Past performance may not be an indicator of future success, but Starbucks (SBUX) earnings and the remarkable winning streak of SBUX stock make it hard not to like the Seattle-based coffee shop despite its currently lofty levels.
What’s lofty about it? Honestly, Starbucks’ valuation looks a little rich with SBUX stock trading at 30 times forward earnings. That’s much more expensive than its own five-year average of 25, as well as more expensive than the broader market.
Starbucks recent earnings, however, showed once again SBUX is printing growth and — at least for now — can do no wrong.
And let’s not forget, SBUX is doing so against a macroeconomic backdrop that is tripping up most other U.S. multinationals.
Besides, there aren’t a lot of places for investors to go for big-time returns.
In a year when stocks can’t gain traction thanks to a sluggish global economy, geopolitical crises and an impending Federal Reserve rate hike, SBUX has been a bastion of outperformance. Indeed, few S&P 500 stocks with Starbucks’ size are crushing the market.
SBUX, with a market capitalization of $86 billion, is up nearly 40% for the year-to-date. That’s a lifesaver in a cap-weighted portfolio, and we can expect more buoyancy ahead.
Heck, everything Starbucks attempts appears to be working. The company’s mobile apps and loyalty program have become electromagnetic for customer traffic. Then there’s new breakfast items, improved training and better procedures that are also keeping sales momentum strong. And Starbucks’ efforts to attract more customers during off-peak hours is meeting with success.
SBUX Revenue: A Refuge of Growth
The end result of these new endeavors was a 4% rise in customer visits during the quarter. In turn, that led to a 7% gain in global same-store sales, trouncing Wall Street’s 6.2% expectations.
In the Americas, same-store sales rose 8% vs. a forecast for 6.3%. (Same-store sales are a key measure of a retailer’s health. They essentially exclude the impact of new locations on company-wide revenue growth.)
It all adds up to strong top-line growth, which is something in short supply this earnings season. SBUX revenue jumped 18% — a huge increase on a $4.9 billion base — to top analysts’ average estimate, according to a survey by Thomson Reuters.
Mind you, the S&P 500 is projected to post a 4% drop in revenue for the quarter. SBUX is an island of top-line gains right now, and that’s sure to support higher prices for Starbucks stock in an otherwise dismal year.
On the bottom line, Starbucks earnings beat Street estimates by a penny a share. The current quarter and full year outlooks were essentially in-line with Street forecasts.
SBUX stands out as a sanctuary of revenue growth and stock performance in an otherwise lame year for equities.
If nothing else, stellar sentiment and blemish-free quarterly results assure that Starbucks stock will keep thriving on performance-chasing alone.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- Amazon Stock and the Outsized Role of the Cloud
- 5 Cash-Rich Stocks to Buy
- Stay Safe With These 5 Index Funds