I'll run through a few brief pros/cons.
Pros:
- Price-point: Donny Deutsch pointed out on The Big Idea that CEO Howard Schultz has the power to charge whatever he wants for the coffee -- because you're really paying for the atmosphere. Starbucks continues to increase their top line revenues via price hikes ($0.05 in October, 2006) and new, innovative decor.
- Brand loyalty: The parking lots are full, the lines are long, and I even ran a search on the company to find complete blogs and discussion forums dedicated to the coffee giant.
- International growth: Starbucks raised its goal to 40,000 new stores (+10,000) in October of last year.
- I believe Starbucks sees itself as almost a secular-type stock -- that regardless of an economic downturn, people will keep buying Starbucks like they buy cereal, beverages and other household items. If the present bull-market subsides, I think SBUX is still a strong hold, especially with analyst price targets holding above $40.
Cons:
- *P/E of 47 trailing, 31 forward with a 1.68 PEG ratio: Investors were scared off last summer when the stock bottomed out at its 52-week low of $28.72. It could certainly happen if and when SBUX reports sub-par earnings and stagnant growth.
- Market Share: Starbucks has been the subtle target of recent Dunkin' Donuts (TM) advertisements -- aiming to show difficulties in ordering and waiting for Starbucks coffee, complete with a clever jingle.
- Had a nice run off of its lows, but has broken below its 50 day moving average versus its 1 year chart.
*All fundamentals & technicals are as of market close on 1/26/07.
What to watch in the Options Market:
- Feb. $37.50 calls ($0.20) are a cheap alternative for the bullish bulls.
- April $30 put ($0.40) volume is high and worth watching.
Sentiment: Hold
Disclosure: I have no position in (NasdaqGS:SBUX). This commentary is for informational purposes only and is not a recommendation to buy or sell any security.
2 comments:
Coffee from ol' Ronnie Mac fared better in a taste test:
http://www.canada.com/reginaleaderpost/news/canada_world/story.html?id=9af404dd-0e49-4fee-bc57-01be823174ff
thanks for the link. true, i'm not a fan of the coffee myself.
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