Wealth Flash Starbucks (SBUX)





WEALTH FLASH - Starbucks 190121
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STOCK UPDATE


Starbucks (SBUX) has dropped 16.4% ytd and we see more headwinds ahead. Despite recent underperformance, the stock is not trading on cheap valuations. Starbuck’s current PE ratio is not far from its 10-year historical mean. In addition, Starbucks is coming to the end of its five year expansion plan in China. China has been a growth driver for the company. Ever increasing labour and raw material cost could also weigh on the stock.


OUR VIEW 

Take profit. We originally recommended SBUX on 13 April, 2020 as it fell about 30% from pre-Covid levels and re-iterated the stock idea again on October 20, 2020, banking on faster than expected recovery to pre-Covid levels. Since April 2020, the stock has returned 40.6% (21.2% annualized) as at January 18, 2021 


Valuations are not cheap despite its underperforming the general US stock market. Starbucks is current trading at 30.2x price earnings, which is not far from its 10-year historic average PE of 35.8x. (see below chart)