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SBUX: 3 Reasons Starbucks Is in the Sweet Spot

Starbucks (SBUX) continues to dominate the market, as a beat on both the top and bottom lines last week sent shares of the stock climbing. Add the momentum up and SBUX stock has a delicious year-to-date climb of more than 40% in the books, in the form of an almost perfectly straight incline.

Starbucks stock SBUX covered callsThe recently reported results that had investors applauding included:

  • Solid 8% same-store sales growth in the domestic market
  • Record quarterly revenue of $4.9 billion on the back of 18% year-over-year growth
  • Record fiscal Q3 earnings of 42 cents per share — a penny better than the analyst consensus and good for 24% year-over-year growth.

That kind of expansion is hardly new for Starbucks, though. The company has averaged annual earnings growth of 20% over the past five years, and that rate is only expected to cool down by a couple percentage points for the next five.

Everything Starbucks Is Doing Right

Which raises the question: How exactly has Starbucks been able to maintain a growth story for so long where many other momentum restaurant stocks have failed? While there are a lot of factors at play, three key ones come to mind first. Take a look:

  1. Price Points: Starbucks, when compared to other restaurant stocks, has the advantage of offering goods at a much lower price point. Even if the economy is only recovering slowly, that’s enough for consumers to open up their purses and snag a cup of coffee on the way to work. On the flip side, though, Starbucks has a sweeter price point than a rival like Dunkin Brands’ (DNKN) Dunkin Donuts — and it has been introducing even higher priced options like S’more Frappuccinos and Flat White espresso drinks.
  1. Ubiquity: Along the same lines, picking up a cup of coffee on the way to work is something that happens every day for a lot of people. Many other restaurant stocks, even if they build the most loyal customer base, don’t have that kind of routine built into their sales. This level of ubiquity is why Starbucks has been able to so successfully infiltrate everything from street corners to grocery stores in North America. But Starbucks is also taking that ubiquity to the next level with its global expansion — an expansion that the numbers show is going well. In the most recent quarter, same-store sales rose 7% on a global basis, including an 11% increase in Asia. In fact, earlier this year, CEO Howard Schulz noted that: “We have established Starbucks as, not only the leading provider in coffee, but also a brand of choice and luxury in China.”
  1. Thinking Ahead: The idea of Starbucks being a “brand of choice” resonates with regards to the stock’s continued success. That brand has remained strong because the company is always thinking differently and thinking ahead. Starbucks first envisioned that a coffee shop could be the kind of community and hotspot it has become … but it’s not stopping there. SBUX added drive-through and now has its eye on mobile orders and mobile payments. In the most recent quarterly report, in fact, the company said Starbucks Mobile Order & Pay expanded to more than 4,000 U.S. stores, while it should be in all company-operated locations by the holidays. The fact that Starbucks is never sitting still has helped keep that brand alive.

All in all, Starbucks as a company has all the intangibles for success — and they’re showing up tangibly in quarterly statement after quarterly statement. It’s no wonder, then, that a gamechanger like SBUX stock just keeps chugging higher.

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