Should I invest in Starbucks after Q4 results?


Starbucks Corporation (NASDAQ: SBUX ) reported better-than-expected fourth-quarter results last week, and interim CEO Howard Schultz said the company saw rising global demand for Starbucks coffee during the quarter.

The demand for Starbucks coffee is increasing

Starbucks reported strong fourth-quarter results Thursday; Total revenue rose 3.2% year-over-year to $8.41 billion, slightly above expectations, while earnings per share were flat. non-GAAP per share was $0.81 (+$0.09).

Global comparable store sales rose 7% in the fourth quarter, and it’s important to note that Starbucks opened 763 net new stores during the quarter and ended the period with a record 35,711 stores worldwide. Howard Schultz, interim CEO, said:

In Q4 and throughout the year, we saw an increase in demand for Starbucks coffee around the world. Our fourth quarter results demonstrate the success of our US reinvention investments.

On the downside, comparable store sales in China are down 24%; However, investors should keep in mind that this is due to a 22% drop in transactions due to COVID restrictions in key cities.

Starbucks remains convinced of the upward trend in China, the coffee market in China is still at a very early stage, and the company has a long way to grow.

Fourth quarter results position Starbucks for accelerated, sustainable, long-term, profitable growth and value creation in fiscal year 2023.

Now let’s take a look at the basics. With a price-to-earnings (or “P/E”) ratio of 26.9, Starbucks is on the more expensive side of the market, as many companies in the US stock market currently have P/E ratios below 15.

Starbucks trades at more than 17 times TTM EBITDA, and to justify its current valuation, Starbucks will need to deliver exceptional growth that is well above the market, which won’t be easy.

It’s true that Starbucks has steadily increased its dividend for years with compound annual growth of 21% over the past decade, but its current dividend yield of 2.3% seems plausible in the current economic climate where the Federal Reserve continues to take aggressive actions , not attractive. enough.

The reward/risk ratio is not good enough for “value” investors right now, and if the US stock market enters a more significant correction phase, the stock price could trade at much lower levels.

Technical Analysis

Starbucks’ share price has been rising over the past few days, and right now the bulls are controlling the price action.

The price has also moved above the 10-day moving average, which is definitely a positive sign; Still, investors should keep in mind that Starbucks stock isn’t cheap at the current price.

Data source: tradingview.com

The current support level is $90, while $100 is the key resistance level. If the price falls below $90, it would be a sell signal and the path to $85 is clear.

However, if the price rises above $100, the next target could be $105 or even $110 resistance.

Summary

Starbucks reported better-than-expected fourth-quarter results last week, and interim CEO Howard Schultz said demand for Starbucks coffee is accelerating. Starbucks’ stock price has risen over the past few days, but investors should keep in mind that Starbucks stock isn’t cheap at its current price.

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