Will we “return to normal” sooner than anticipated? That’s the bet you’re making with restaurant names like Starbucks (NASDAQ:SBUX). Shares in the coffee chain have bounced back more than 50% from their novel coronavirus sell-off lows. But that doesn’t mean it’s too late to enter a position in SBUX stock.
With the end of lockdowns in the United States approaching, now may be the time to buy. Despite the epic rebound in recent weeks, shares still trade below where they were in February, and more than 23% below their 52-week high.
That brings us to another interesting point. Unlike most stocks, SBUX stock didn’t make all-time highs on the eve of the outbreak. The U.S.-China trade war took some wind out of the global coffee powerhouse’s shares. But with China in recovery mode and the chain up-and-running in its flagship international market, shares could see an even greater rebound compared to other consumer staple names.
Add in Starbucks’ strong brand equity, both stateside and internationally, and there’s good reason to consider shares a buy. Sure, we have a ways to go before a complete rebound. But, that doesn’t mean shares are going to fall back to prior lows anytime soon.
SBUX Stock and Post-Pandemic Recovery
Will retail and restaurants bounce back quickly after the outbreak? That’s debatable. On one hand, consumer surveys like a recent one from Gordon Haskett show that nearly half of Americans are willing to go back to restaurants within a month.
On the other hand, restaurant stocks continue to trade as if the pandemic will hurt sales much longer than just a few quarters. I can think of two strong reasons why this won’t be the case.
Firstly, the innate human desire to socialize. Once lockdowns come to an end, Americans won’t stay cooped up at home for long. They may take precautions, like wearing masks, at first. Yet, the desire to engage in the simple pleasures of life, like going out for coffee, will win out.
Secondly, the strong brand equity of Starbucks could mean a sooner-than-anticipated recovery in sales. Consider that even with stores offering only grab-and-go and drive-through options, loyalty remains strong. That could mean that consumers return in full-force once store “social distancing” ends.
I’m not saying, “expect better than predicted results this upcoming quarter.” Sales and earnings are going to take a big dive. Yet, taking a short-term view of this company’s performance is the wrong perspective. Near-term hiccups aside, this company’s underlying strengths and resiliency in light of today’s headwinds, means its long-term prospects remain strong.
China Experience Shows Quick Rebound Could Happen Stateside
It may be a while before Starbucks recovers domestically. But over in China, stores are up-and-running again. As the company’s second-largest market, Starbucks’ future growth depends highly on a Chinese economic recovery post-outbreak.
One advantage of the company’s exposure to China is how it provides valuable insight on how the pandemic after-effects will play out in the United States. Based on reports from late last month, the company’s China sales could recover as soon as September.
Considering China was a few months ahead of us regarding coronavirus, that could mean continued weak sales domestically through the end of 2020. But, it does show bad times won’t last forever for Starbucks.
As I discussed back in April, this fiscal year (ending September 2020) will definitely see declines in sales and earnings from the prior fiscal year. As fiscal 2021 analyst estimates imply, not only will things retrace the high water mark next year, but sales could be higher than where they were in fiscal 2019.
In short, plenty of reason why SBUX stock could continue to move higher. Even as it remains uncertain when U.S. sales will bounce back.
As Starbucks Moves Down Road to Recovery, Buy on Any Weakness
Granted, it’s not smooth sailing for the global coffee powerhouse. But, uncertainty could give you a strong entry point for a long-term position. What do I mean? Consider any short-term pullback in SBUX stock as prime time to buy.
Given it won’t be until 2021 when Starbucks fully recovers from the pandemic, you may be able to enter at slightly lower prices than where shares trade today. Yet, I still contend shares are a strong buy.
The company’s resiliency during the pandemic underscores the company’s strong economic moat and brand equity. Projections of growth in 2021, even after this year’s hiccup, show the company’s long-term runway remains.
Bottom line: scoop up SBUX stock on any weakness. Once the pandemic comes to an end, don’t expect shares to remain below their all-time highs for long.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
