The stock of specialty coffee chain SBUX has increased by more than 12% in the past year.
Starbucks operates in more than 80 countries and has nearly 34,000 stores.
Long-term investors should consider buying dips in SBUX stocks, especially if they fall toward $110.
Investors in the specialty coffee chain Starbucks (NASDAQ:) saw double-digit returns in 2021. Over the past 12 months, SBUX stock has risen around 12.30%.
By comparison, the S&P Food & Beverage Select Industry Index gained 14.4% over the past 52 weeks. And the Jones US Restaurants & Bars Index is up 19.4%.
At the end of July 2021, SBUX shares hit $126.32 – a record high. However, they have come under pressure and have since lost about 8%. The stock's 52-week range was $95.92 – $126.32, while its market capitalization (cap) is $136.7 billion.
Starbucks celebrated its 50th anniversary in 2021. It currently has nearly 34,000 stores worldwide. About 51% of them are owned by the company and the rest are licensed.
Recent statistics show that the global coffee shop market is expected to reach nearly $81 billion by 2024. The current market size in the US is approximately $36 billion. Starbucks is the 'Coffeeshop Chain with the Highest Brand Value Worldwide' and the 'Leading Coffee Shop Chain in the US by Revenue'.
Starbucks ranks sixth among Fortune's most admired companies and number one in the foodservice industry. The coffee chain has a leading position in areas such as 'Innovation', 'People Management', 'Use of Company Assets' and 'Long-Term Investment Value'.
As part of the social media push, management recently announced a partnership with streaming giant Netflix's (NASDAQ:) Book Club. The two will create monthly literary and entertainment content for Netflix's social media channels.
Management released Q4 and FY21 figures on October 28. Revenue was $8.1 billion, up 31% year-over-year (year-over-year). Adjusted earnings per share (EPS) came in at $1. Investors were pleased to see fourth-quarter comparable store sales up 17% globally and 22% in the US.
During the conference call, CEO Kevin Johnson said:
"Our performance accelerated through FY 2021, leading to revenue growth of 21%, non-GAAP operating income grew 139% and translated to non-GAAP earnings per share of $3.24, near the top of our forecast for the year."
Before the release of the SBUX stock, it was trading around $114. The day after the announcement, the stock hit an intraday low of $104.02. The stock is currently hovering at $116.15. Finally, the current price supports a dividend yield of 1.69%.
What to Expect from Starbucks Shares The average 12-month target is $122.84, which is an increase of 7.53% from current levels.
Chart: Investing.com
The 12 month price range is currently between $96 and $148.
Similarly, according to a number of valuation models, such as those that consider P/E, P/B, P/S, or revenue multiples, the average fair value for SBUX stock stands at $121.99 – a value that is very close to the estimate above.
Meanwhile, looking at the company's financial health, determined by ranking more than 100 factors against peers in the consumer discretionary sector, we find that in terms of earnings health and price momentum, SBUX ranks 4 out of 5 (high score). Overall performance is rated "good".
The latest P/E and P/S ratios for Starbucks stock are 32.6x and 4.7x. In comparison, those stats for peers are 19.1x and 2.1x.
We may also view similar statistics for Restaurant Brands International (NYSE:). They are 25.2x and 5.0x. And the numbers for McDonald's (NYSE:) are at 27.6x and 8.9x.
Finally, those who also pay attention to technical charts may be interested to know that several short- and medium-term indicators of SBUX are at overbought levels, warning investors. As the company is expected to report Q1 stats at the end of January, Starbucks stock price may falter further.
In the coming weeks, we expect SBUX stocks to potentially trade in a range between $105 and $120, providing a base from which to begin another leg later in the year.
Therefore, investors who are not concerned about short-term fluctuations in SBUX stocks may want to consider buying the dips.
Alternatively, those who are optimistic about SBUX stocks long-term, but concerned about short-term volatility, can use options. For example, they could compose a covered call position. We've discussed numerous examples before (e.g. with Apple (NASDAQ:) and AMD).
$116.15
For every 100 shares of SBUX owned, the strategy requires the trader to sell one call option with an expiration date sometime in the future.
Intraday Tuesday, Starbucks stock traded at $116.15. That is why we use this price for this message.
A stock option contract on SBUX (or any other stock) is the option to buy (or sell) 100 shares.
Investors who think there could be more volatility or profit taking soon should use a lightly in-the-money (ITM) covered call. A call option is ITM if the market price (here $116.15) is higher than the strike price ($115.00).
So the investor would buy (or already own) 100 shares of Starbucks stock for $116.15 and simultaneously sell an SBUX Feb. 18, 115.0 strike-call option. This option is currently offered at a price (or premium) of $4.95.
An option buyer would have to pay $4.95 X 100 (or $495) in premium to the option seller. This call option ends on Friday, February 18.
This premium amount belongs to the option writer (seller) regardless of what happens in the future, for example on the expiry date.
Assuming a trader would now enter this covered call trade for $116.15, the max return would be $380 i.e. ($495 – ($116.15 – $115.00) X 100), excluding trading commissions and fees.
