Is Starbucks Stock A Buy In 2018
Righteo this is the stock that seemingly everyone is talking about.
Some people say the stock is complete garbage (Cough Jeremy) and others don't mind the
look of it.
So in this video I wanted to give you guys a more all-round picture of Starbucks stock.
The good, the bad and the ugly.
We'll begin with a speedy overview of the stock, then get into the numbers, the positives,
negatives and the return that you could expect at the current price level.
So let's start with a quick overview of the stock
Starbucks are known as the company that globalized coffee.
They have over 26,000 stores around the world, in 65 different countries serving almost 80
million coffee guzzling customers a week.
Starbucks culture of coffee was founded around community, theatre, customer experience and
most importantly great coffee.
And when they started implementing this strategy in late 1980's coffee was not nearly as
much as part of the culture in America as it is today.
Starbucks sort of grew along with the rise in coffee culture in the U.S.
Today as China's coffee culture grow's, Starbucks are trying to do the same as they
did back then, grow with the culture.
Now let's talk about some of the positives of owning Starbucks Stock.
Later on in the video I'll get into the negatives as well.
1st Positive is their competitive advantage in their brand name and reputation.
We've talked about the culture that Starbucks tries to operate in.
Good quality, customer experience and a sense of community.
Now over time they've developed a good brand name and reputation from this.
What this means is that they can sell their products, their coffee for a higher amount
then other stores.
Now some people have been criticizing Starbucks stock for their high price products.
But Starbucks have earnt the right to do so, by developing a good reputation.
At the end of the day it's about the customer.
And if the customers willing to pay extra money for a coffee because it'll look cooler
on Instagram that is a major competitive advantage for Starbucks.
2) Opportunity for Growth In China.
So I've talked about how Starbucks grew with the growing coffee culture in the United
States back in the 80's.
It seems that the same thing is happening in 2018 with China.
China's middle class is growing at rapid rates and as the population gets richer they
spend more money on discretionary items.
Items such as coffee.
I actually had a Chinese lad stay with me about a year ago and he reckoned the Chinese
love coffee nowadays.
So Starbucks are planning on capitalizing on this movement.
By opening a new store in China every 15 hours for the next 4 years.
3) It's going for a good price So let's look at the numbers.
Over the past month Starbucks price has plummeted and we'll address why a bit later in the
video.
It used to be around $58 and now its dropped to $50.6.
The earnings per share is $3 and P/E ratio is 16.6.
It's a pretty big company around $70 billion and they pay a dividend of 2.81%.
So I'm going to take the earnings and the price in order to figure out the expected
return.
Now this is the formula that I use to figure it out.
Price obviously is $50.6.
Earnings is $3.05 but I'm going to be conservative and say owners earnings is $2.50.
Starbucks expects the growth in earnings to be 12% but again let's be conservative and
say 6%.
If we use a little algebra we can figure out that the expected return is 10.8% based on
the current price, earnings and growth rate.
And the last positive I wanted to mention was that Starbucks is good business to own.
Why because it can turn money into more money at a high rate.
If we look at Starbucks return on invested capital we can see that it is really high.
That means they turn your capital into more money quickly.
The sign of a great business.
Ok enough of this positive talk, let's get into the negatives of Starbucks stock.
1) And we'll start with the glaring one.
Starbucks expects to close 150 stores in 2019.
This is an increase of about 100 more than they normally close.
Now the problem that I think we had with Starbucks is that they over expanded too quickly.
And this is actually quite a normal thing to see.
Shareholders love to see that companies are growing and expanding so companies sometimes
exaggerate growth.
I see it with a lot of companies actually.
There shareholders letters are filled with the new stores and intiativies that they're
opening, but it does mean that they are they are using their money to expand efficiently.
So Starbucks have decided to trim some of the underperforming stores.
It may not look good, especially with those who just read the headlines but I think it's
a sensible move.
2) The second Con or negative is that there leader the guy who started everything is no
longer ceo and is stepping down as executive chairman.
Howard Shultz is the guy who had the vision of where Starbucks would go and he created
the whole culture within the business.
3) The Final negative is that Starbucks is one of the more riskier stocks to own in a
recession.
Because in a recession people have less money, hence less money to spend on discretionary
items like coffee.
So hopefully that's going to give you guys a more all-round picture of Starbucks.
Its not all doom and gloom as some say and its not fully positive either, as with everything
there is a balance.
So I know you guys want to know my opinion on the stock.
And I'm going to give you a pretty PC answer.
Here we go, "Starbucks is one of the better stocks in the market based on the current
price levels, whether you think it's a buy or not that's always up to you and your
investing style".
You know I love to be PC, not really.
Anyway as always if you want more videos on different stocks around the United States
and the world then subscribe to the channel.
Also let me know your thoughts in the comments below, I love reading them.
Till next time, bye.
For more infomation >> Video: Protesters pitch 'tent city' outside resort where GOP summit is being held - Duration: 2:27. 
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