Where is Starbucks’ Stock Heading for the New Year?
Starbucks has seen their stock prices improve slightly, with a small increase of 6 percent for this year. This small gain hasn’t garnered a lot of enthusiasm from investors, especially the long-term ones. IN fact, they are wondering if the incredible 270 percent surge in stock prices over the past five years has finally come to a screeching halt. There are three critical variables that have led to Starbucks’ hitting its lows and highs. Thus, there’s historical valuation, product cost and the Chinese market. These are the factors that need to be analyzed to determine how Starbucks shares will be doing in 2017.
Starbucks valuation numbers could go either way. The company’s recent annual earnings decline because of a litigation cost of $2.8 billion, has resulted in Starbucks’ trailing price to earnings ratio bouncing back and forth between 24 and 30 over a four-year period. If these numbers were to be multiplied by the EPS mean of $3.13 Morningstar is expecting the company to post, a rough price target for their shares would be somewhere between $75.12 and $93.9.
Statistics that don’t include 2013 shows that the current price-to-earnings ratio that company has, namely 30.7, is the biggest figure the company has achieved in the past four years. This says that at its current price, there’s a better chance of the stock coming in at a downside rather than the other way around. The coffee brewer’s shares are trading at a premium, compared to McDonald’s, which is trading at a multiple of 18 of their trailing earnings, and Dunkin Brands, which is trading at a multiple of 30 of their trailing earnings.
Even considering all these factors, Starbucks is still growing at a faster rate than their competitors. ON a year over year basis, revenues for the previous quarter increased by 10 percent. Dunkin Brands, on the other hand, saw only a slight growth of 3.4 percent to their revenues, whereas McDonald’s saw their revenues contract by 4.6 percent.
With the next fiscal year closing in, Starbucks has completed 60 percent of their prices for coffee in preparation. The rest of the figures will be converted taking into account the prices for 2017. Droughts have led to the price of Brazilian Arabica coffee beans jumping from their 2013 price of $1.395 to $1.988 in 2016. On a positive note for consumers and companies that serve brewed coffee, analysts aren’t expecting any other significant changes in the price of coffee beans during this fiscal year. The price of the Arabica bean is predicted to rise slightly to $2.033 per pound in FY 2017.
However, analysts are of the same mind and that is the price of coffee beans isn’t a matter for concern for the market, certainly not as much as the problems they are facing in the Chinese market.
In 2016, Chinese and Asian markets were the fronts where Starbucks carried out the fastest level of expansion. The areas registered gains in sales of over 7 percent, which is the most important figure, when compared to the 5 percent growth in Europe and 6 percent growth in the US. Last year, the number came in at 7.4 percent, with operating income hitting the 12.1 percent mark.
Starbucks intends to establish another 850 stores in China, compared to the 120 it opened this last quarter.