If you had purchased $ 156,000 worth of Starbucks (NASDAQ: SBUX) ten years ago, you would be a millionaire today. The $ 125 billion global coffee chain has been an exceptional investment, with the stock having climbed over 500% in the past 10 years.
Investors hoping for similar returns should certainly consider whether the company still has much growth, as the future is what matters to long-term shareholders. Although Starbucks hit a speed bump last year due to the coronavirus pandemic, the company is get back on track and is almost fully recovered.
Let’s see if Starbucks could still be millionaire’s stock.
Adapt to change
Starbucks’ business was hit hard last year by temporarily shutting down locations around the world in response to the Coronavirus pandemic. But the strength of the brand, coupled with unshakeable consumer craving for caffeine, gave a boost to the reopening of stores.
While the number of customer transactions was still down year-over-year in the company’s first quarter of fiscal 2021, the average the ticket was actually higher than pre-pandemic levels as larger bulk orders grew in popularity. The company has also been able to serve customers in several ways through itsthrough, curbside pickup option and mobile ordering. The Starbucks Rewards program, now at 21.8 million members, increased by 15% during the quarter (which ended December 27), and these customers represented 50% of sales made by the company to the United States during the period.
Overall revenue for the quarter fell only 5% compared to last year, and China looks very strong, with sales growth of 22% over the period. Starbucks’ ability to continue to serve its customers in the manner most convenient for them is helping it through these turbulent times.
The story of growth is not over
There are currently nearly 33,000 Starbucks Pitches around the world, but management intends to open many more. On the company’s biennial investor day in December, CFO Patrick Grismer noted the company “will reach approximately 55,000 stores in 100 markets by 2030.”
Of the 1,100 new net stores scheduled to open in fiscal 2021, 600 of them will be in China, which will be the main driver of future growth. Starbucks is testing new store format around the country called Starbucks Now. This is a digital layout that will leverage the strong technological capabilities of the company to fulfill orders.
Knowing about these expansion plans can come as a welcome surprise to investors who consider that the coffee chain is already present everywhere. But for a stock to make its owners millionaires, growth is a necessary part of the equation.
Don’t pay too much
With depressed earnings over the past 12 months due to declining sales and rising costs related to COVID-19 security, Starbucks looks expensive when you consider the sliding price-to-earnings ratio. But based on the midpoint of management’s 2021 fiscal year earnings per share (EPS) forecast of $ 2.80, the stock is currently trading at 37 times futures earnings. This valuation is extremely attractive given the high quality of Starbucks’ business.
After being disrupted at the start of the pandemic, the business is almost back to growth. And despite a slight setback, management intends to remain aggressive by opening a large number of new stores over the next 10 years. This is great news for existing and potential shareholders. Starbucks has been a stock market winner for many years, and it could very well continue to be a millionaire maker for years to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link