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Starbucks cheap?
Old 06-06-2007, 10:16 AM   #1
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Starbucks cheap?

Starbucks? It's trading near a 52 week low, but the PE is still pretty high (35).

Relative to other similar businesses, like "Peet's Coffee & Tea", the PE is low.

Lots of other things to consider, but is anyone seeing what I'm seeing (or not seeing?). Profit is off 1% in Q1 vs. 2006 avg., and it seems like SBUX may be losing their way (managment is selling other crap, besides coffee, like CDs, etc.)

I don't plan on buying any shares other than what's in Vanguard's Total Stock Market Fund, just throwing it out there for a talking point.

-CC
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Old 06-06-2007, 10:30 AM   #2
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Not really my cup of tea, but I guess if you buy the stock you are pretty much betting on two things to sustain growth: international expansion, and the ability of management to use the "store experience" to sell more and more non-coffee items.

International expansion seems believable. I dunno about the pushing of other crap through the stores.
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Old 06-06-2007, 10:31 AM   #3
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Originally Posted by CCdaCE View Post
... and it seems like SBUX may be losing their way (managment is selling other crap, besides coffee, etc.)

-CC
I haven't looked at Starbucks, but the point you make about selling other things is not necesarily a negative. As long as they don't significantly take on overhead for this broadened set of goods, it will mostly all flow to the bottom line.

By now, many Starbuck's stores have a competitor within a block or so, so it may be that raising the price of coffee is not as easy as it once was.

Look at the gasoline retail business- sales at the pump keep the store open, cigarettes and Cokes provide the profit.

ha
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Old 06-06-2007, 10:32 AM   #4
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Look at the gasoline retail business- sales at the pump keep the store open, cigarettes and Cokes provide the profit.

ha
The analogy suits me, especially as I generally find their coffee about as palatable as gasoline.
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Old 06-06-2007, 10:48 AM   #5
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When I think of SBUX (11,000 stores) I think of MCD (33,000 stores). Can there be as many SBUX as MCDs?

The stock is not my cup of tea since it's a high flyer at 30x earnings, it pays no dividend, the cash flow is "worse" than the earnings b/c they are still spending so much to build more stores . . . but if I had more of a growth investing philosophy I'd be interested.

I don't drink coffee at all and I've never set foot in one of their stores, but I don't see why there can't be as many SBUX as MCDs since it's still food and drink service. And since SBUX appears to be more of a lifestyle trend, it's easier for them to sell merchandise, I suppose. As a non-customer, it's hard to me imagine walking into a coffeeshop and buying CDs and mugs since I have a hard time fathoming that at MCDs, but obviously they have a different setting and customer.

In glancing at their financials I was impressed that their long term debt is so low given how fast they have been building the chain.
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Old 06-07-2007, 09:55 PM   #6
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Not really my cup of tea, but I guess if you buy the stock you are pretty much betting on two things to sustain growth: international expansion, and the ability of management to use the "store experience" to sell more and more non-coffee items.

International expansion seems believable. I dunno about the pushing of other crap through the stores.
Don't know where else they are expanding to, but they may be reaching saturation in Japan. There are already 2 of them in my rinky-dink town, which is the same number we have each of McDonald's and Kentucky Fried Chicken. (And is also 2 more than we needed, as far as I am concerned. A Peet's might have been nice, but oh well.)
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