Starbucks remains undervalued and is poised to move higher.
The market has misunderstood a few ever appealing items within SBUX’s profit equation, namely:
- SBUX controls the pricing power for the all cafes and the coffee industry as whole
- SBUX is comparable to Coca-Cola (KO) in the late 1980’s due to their nearly monopolistic presence in the market, owning several brand name and product lines, offering strong and growing FCF yield, and also due to they’re multiple streams of revenue.
- SBUX is one of the few companies with an optimal product line which will converge upon the health food trends and regulations in the time ahead.
- SBUX is the sole company which is a friend to both the virtual office and the tangible meeting place.
- SBUX’s margins have embedded buffers so that upon any unforeseen climb in commodity prices they’re business can continue to expand.
The main risk I see is the turning of coffee bean prices. SBUX uses a mix of arabica and robusta beans. While coffee prices have been at all time lows in recent years, they recently have seen upward traction in price movement. This is largely due to arabica beans moving upwards in price because of the ongoing political volatility in Brazil. Nevertheless, at some point coffee prices will rebound much higher inciting fear in SBUX’s investors. While I am accumulating share now, I believe at that time this happens I will look to accumulate even more.