Why is Starbucks stock down 14% on the year even as the S&P 500 has moved 17% the other way?

Question

It is approaching a 52 week low. They have plans for rapid expansion into Asia. Is it an indicator of the stages in the cycle Starbucks is in with its expansion? It looks like a good time to buy here, especially for the longs. I haven't done enough research as to why the stock has taken a dip like this. I am wondering if anyone else has some insight. I do love their company philosophy, good management. So, buy or sell...

Answer 1

To start with, Starbucks (SBUX - 25.87) is down 27% YTD and the S&P is up 9.36% (with the indes at 1536.13) with dividends reinvested.



Source: Bloomberg



Starbucks is facing some headwinds. McDonalds has improved its reputation with coffee drinkers after changing to a premium coffee. Marc Greenberg of Deutsche Bank Securities, Inc. was surprised by the consumer satisfaction results for McDonalds coffee and cut his target price on June 8th from $37 to $32 per share.



He might have been a little late.



On February 2nd, news stories reported that McDonald's coffee topped Starbucks in a Consumer Reports Taste Test.



Starbucks had been falling since late last year, coinciding with the news of the national rollout of premium coffee.



Most recently, the CFO of Starbucks indicated that it will be "very challenging" for the company to reach the upper target of its profit forecast. 6/21/07



The headwinds: new store openings slowing profit growth, milk/dairy price increases, and competition from McDonald's.



My best guess: The P/E multiple was just too high for these developments.

Answer 2

Because Starbucks was overpriced. It's PE was at 40. Now it's down to about 26 (20 is average), but I still think it'll drop further. A PE of 40, means the company is growing very rapidly. (McDonalds is 17). However, the rapid growth of Starbucks stopped happening a couple years ago. Near where I live, there are two Starbucks across the street from each other. Oversaturation, anyone?



The bottom might be about $20-22. I don't think the expansion into Asia will be that rapid. I saw Starbucks in Shanghai, but Asians drink tea and the Chinese aren't going to pay 20 yuan for a cup of coffee.

Answer 3

properly i'm 17, 24 weeks pregnant, and that i'm a week at the back of you yet i've got had some issues already I had to be in the well-being facility for 4 days because of the fact I had a bladder, kidney, and blood an infection and it became into terrible and you do have an greater possibility whilst being pregnant to capture a bladder an infection, and beware because of the fact if it strikes to the kidney's it may reason pre term hard paintings and injury you too. yet no different issues because of the fact then, solid success alongside with your being pregnant. i'm getting an epidural.

Answer 4

They have expanded too quickly, in the process losing quality control, resulting in a serious dilution of their product "cachet". When you can get a discounted latte at Dunkin Donuts, why pay Starbucks prices when you no longer get good service and a pleasant environment?



They have also made a questionable foray into cinema.