Recently, Starbucks Corp (SBUX, Financial) has experienced a notable decline in its stock price, with a significant drop of 15.88% in a single day and a decrease of 19.64% over the past three months. Despite these fluctuations, the Earnings Per Share (EPS) stands at 3.63. This analysis delves into whether Starbucks is significantly undervalued and what that implies for potential investors.
Company Overview
Starbucks is a global leader in the coffee restaurant industry, boasting over 38,000 stores across more than 80 countries. The company is segmented into North America, international markets, and channel development, which includes grocery and ready-to-drink beverages. Starbucks generates revenue through various channels such as company-operated stores, royalties, and sales of products to license partners. With a current market cap of $84.30 billion and a stock price of $74.44, compared to a GF Value of $116.12, an initial analysis suggests that Starbucks might be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor from past performance, and future business performance estimates. For Starbucks, the GF Value is set at $116.12, indicating a potential undervaluation at the current price of $74.44. This discrepancy suggests that investing in Starbucks now could lead to favorable returns as the market corrects this undervaluation.
Financial Strength and Stability
Investing in a company with robust financial health reduces the risk of significant capital loss. Starbucks' financial strength is evaluated with various metrics, including the cash-to-debt ratio, where it scores 0.14, positioning it weaker than 72.43% of its industry peers. Despite this, Starbucks maintains a fair financial strength rating of 5 out of 10 from GuruFocus.
Profitability and Growth Prospects
Starbucks has consistently demonstrated profitability, with a strong operating margin of 15.62%, ranking better than 89.94% of its competitors in the restaurant industry. The company's 3-year average revenue growth rate is also impressive, surpassing 76.88% of its industry counterparts. Such metrics suggest that Starbucks not only maintains healthy profitability but also shows promising growth prospects.
Investment Returns: ROIC vs. WACC
An essential aspect of assessing a company's profitability and investment returns is comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Starbucks' ROIC stands at 16.26%, significantly higher than its WACC of 8.31%, indicating efficient management of capital and promising shareholder returns.
Conclusion
In conclusion, despite recent price drops, Starbucks presents a compelling case for undervaluation based on its GF Value, solid financial metrics, and growth prospects. Investors looking for potential opportunities might consider Starbucks a valuable addition to their portfolios. For more detailed insights and financial data on Starbucks, you can view its 30-Year Financials here.
To discover other high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
