Starbucks (NASDAQ:SBUX) The stock is in some sort of funk. The world’s most famous coffee chain reported a 2% drop in quarterly sales and a 14% drop in profits on Tuesday. Starbucks stock promptly plummeted from over $88 to under $75 per share.
But there is also good news. Because Starbucks stock became so much cheaper last week, investment bank Barclays says the stock now offers much more profit potential. In fact, he expects Starbucks stock to rise to $95 in the next 12 months, up $20 from today.
Is it time to buy Starbucks stock?
Make no mistake: Starbucks’ numbers were bad. Barclays called it even worse than “the worst-case scenario” in a note on TheFly.com on Wednesday. Beyond the lack of second-quarter profits, Starbucks told investors that instead of increasing profits by 15% to 20% this year (as previously promised), the company now expects profits to only be in the “low single digits.” “could rise or even remain “flat”. towards 2023.
So what does this mean for investors?
In 2023, Starbucks earned $3.58 per share. “Low single-digit” growth implies earnings are expected in 2024 could up to $3.72 per share. At today’s price of $75, the coffee stock is trading at best 20 times current year’s earnings.
For a “low single digit” producer, 20x earnings sounds pretty expensive. Also concerning is the fact that Starbucks says it plans to open 4% more stores in the US and 12% more in China this year.
All these new stores, and yet Starbucks’ profits will only grow in the “low single digits”? That sounds inefficient and bad.
Sure, over time Starbucks could grow faster. CEO Laxman Narasimhan says he is pursuing a “triple shot reinvention with two pumps” strategy to turn the business around. And laugh at the name all you want, but it promises shareholders will see results sometime in the fourth quarter of this year. And that’s the other good news. If Narasimhan can deliver, we’ll soon know if Starbucks is worth $95 — or if it’s a value trap.
Should you invest $1,000 in Starbucks now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
Starbucks stock is $20 undervalued, according to a Wall Street analyst originally reported by The Motley Fool