Is Starbucks a Buy?

According to a Barrons article this past week, the growth of Starbucks may not have come to a grinding halt.

Starbucks (SBUX) was highlighted positively in Barron’s this week. The shares have dropped 20% since November to the low $30s but could rally into the mid-40s, if same-store sales and profit margins improve. At the co’s annual shareholder meeting last week, Schultz and CEO Jim Donald put fears to rest regarding investor worries about the company’s growth opportunities due to market saturation. With plans to expand in the US and new markets overseas, the stock could get a lift once investors realize its growth spurt is not over. ~Barron’s

I’m all for a great value pick when it comes to beaten down stocks, but I’ll certianly have to dig a bit deeper into the prospects for Starbucks before I take a large position.

I’m all for a great value pick when it comes to beaten down stocks, but I’ll certianly have to dig a bit deeper into the prospects for Starbucks before I take a large position.Profit Margin Man has an interesting analysis on Starbucks over at Seeking Alpha.  Here is a tidbit of what he had to say…something to chew on if you are considering a buy:

…In addition, the drive-through stores are doing significantly more volume than the regular ones. The hidden part of that equation is that wherever the drive-throughs are opened, the non-drive-through locations are cannibalized far more severely and it is the higher sales volumes that drive the profit margins to the expected returns. Dropping the sales on a $750,000 store by $150,000 due to impact may drop store profit by as much as 40%.

Either it is built for market share’s sake, forget the margins, OR they are going to have to start closing the stores not delivering the expected profit margins, i.e, the older ones. With just 10 year leases, closing is really pretty easy. Oh, but they can’t do that; Mr. S promised 40,000 stores….

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