Starbucks is Down Nearly 10%
Starbucks (SBUX) had a good quarter by most standards, with plenty of growth, but the fact that the stock price was down almost 10% on Friday speaks differently. They missed their quarterly EPS target by a penny or two, and decreased the outlook for the next quarter by two pennies as well.
So is the company really worth $3.6 billion less today than it was yesterday morning? That’s the approximate amount shaved off the market cap on Friday.
The company has a low yield, but they do pay out a decent 35% or so of their earnings as dividends. I analyzed the company last month for those that may be interested:
Starbucks: Substantial Optimism Factored In
From the article:
The valuation is a risk. At over 30 times net earnings, there is a lot of estimated growth factored into the company stock. Reductions in estimates, missed targets, restricted international growth, or less-than-successful acquisitions and changes could have disproportionate effects on the stock price.
Overall, considering the significant macroeconomic issues that the world currently faces, I believe Starbucks stock shows some potential. It’s not a very good pick at all for current income despite their reasonable 40% dividend payout ratio, but if a medium-growth company is desired for a portfolio, Starbucks looks reasonable. There is, however, a fair bit of optimism already factored into the stock, so any major missteps, or a failure to meet fairly aggressive growth estimates, would likely negatively impact shareholders at this valuation. If I were interested in buying, I’d hold and look for dips, because I don’t currently view the company as offering quite enough potential long-term upside to offset the potential downside.
The big drop makes the investment look more interesting. I’m not biting, because the yield is too low for my tastes. The valuation is a bit relieved, but I still wouldn’t call it undervalued. For those that may be interested in the company, however, I’d recommend watching it next week to see if any of the prices look compelling.
Newsletter Growth
In other news, I’m glad to report that the dividend investment newsletter has over 3,000 subscribers now. Five monthly issues have been published, and you get access to the archives when you sign up. There’s no cost for it.
Good Reads for the Week
I found a few articles interesting this week.
McMansions and Pickup Trucks
JT from Money Mamba showed a chart comparing pickup truck sales to new home construction. Obviously there is correlation, but the chart showing precise sales figures is interesting.
(Ford Stock Analysis for reference, if interested.)
How I Saved 21% on my Comcast Bill
Darwin’s Money discussed his negotiations with cable provider Comcast. You can save hundreds of dollars per year by negotiating with your cable provider, and I negotiate with them as well from time to time. With an electricity or gas provider it’s a different story, but with Comcast, the costs are low for any particular hook-up, so there’s a lot of room for negotiating.
Spendy Friends
Trying to improve your financial situation while balancing spending time with spendy friends? Mr. Money Mustache discusses how to deal with these situations.
DIY Investing is my Hobby
A post on the Monevator discusses how investing is a hobby for him. Not just a way to make money, but something that’s interesting in and of itself.
The Average Net Worth for the Above Average Person
Sam from Financial Samurai discusses savings and growth targets for successful people. The average net worth of a general population is way too low for what an investor should be striving for, because the statistics for the general population take into account everyone from Warren Buffett to someone who has never had a job. Compare your targets to a strong peer group.
Peer to Peer Lending Investment Update
Retire by 40 updated readers on his investments in P2P lending. It provides a substantial income yield and rate of return, but defaults are a risk.
Any readers here have any experience with peer to peer lending?
Thanks for your advice on holding off on initiating a position in SBUX. I had been thinking about it after Cramer listed it as one of his growth stocks about a month ago, but after reading your article I thankfully decided to hold back. Now I’ll watch it and see if I can get in at a more attractive valuation.
I’m glad it worked out for you so far.
Come back and comment if you end up buying. There’s definitely growth there, but it all comes down to valuation.
You got any advice on what you think is a fair price to initiate a position?
I view it as reasonably valued in the low to mid $40’s. The forward P/E at this point is still over 20 but growth remains strong.
The yield is too low for my liking, but I would be satisfied to own it as part of a diversified portfolio at the current price.
I’ve got around $700 in peer to peer lending. I want to see how my current loans and criteria do before investing more.
That certainly sounds like the wise thing to do.