Thursday, August 2, 2012

Starbucks Corporation (SBUX) Shares Still Expensive Despite Sell-off post-Results

People are drinking less coffee in the United States and ubiquitous coffee chain Starbucks Corporation (NASDAQ:SBUX) reported below-forecast quarterly results but the company still commands an enviable valuation in comparison to some of its global peers.

On Friday, Starbucks shares took a beating, slumping more than 11 percent on its dismal performance but even after that substantial dip, the company is streets ahead of other stocks in the same sector.

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Its price-earning-ratio is still holding above 25. Compare that with 20 for Yum Brands and 16 for McDonald's.

The question is whether Starbucks performance was a temporary blip due to a weakening economy or is the market putting on blinkers and overestimating the company's future growth prospects.

"It's still a fairly expensive stock. It's still being priced for pretty optimistic growth. That's why we're not a buyer right now," Michael Yoshikami, CEO of Destination Wealth Management in Walnut Creek, California, told Reuters.

 "It's still not as discounted as we would like."

Starbuck itself commented that traffic to its shops was "noticeably down" across the country.

It is of course a fact that despite the U.S. economy have turned sluggish from 2007 onwards, Starbucks has consistently turned in impressive performances and its stock gained 14 percent before Friday's results.

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On Wednesday, Starbucks shares fell another 3.3 percent at $43.78.

There are concerns from various quarters that the prolonged slump in the economy was finally starting to impact the once-robust company and the June-quarter results were a harbinger of things to come.


  1. LOL, dismal performance. I bet every company on the planet wishes they had Starbucks' "dismal" performance. Up almost 20% from 3rd Quarter 2011, horrible and shameful, they should just fold up shop. Give me a break...


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