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Starbucks (NASDAQ: SBUX) will be the stock in focus: (Price at time of writing: $53.63 as 24 October 2016)
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Background and overview of Starbucks (SBUX)
Starbucks recently launched it first few shops in South Africa. With people queing out the door to get a taste of one of the most well known coffee outlets in the world. According to the company's website "Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 68 countries. Formed in 1985, Starbucks Corporation’s common stock trades on the NASDAQ Global Select Market ("NASDAQ") under the symbol "SBUX." We purchase and roast high-quality coffees that we sell, along with handcrafted coffee, tea and other beverages and a variety of fresh food items, including snack offerings, through company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice accounts. In addition to our flagship Starbucks Coffee brand, we sell goods and services under the following brands: Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos."
The company's market cap is currently sitting around the $78billion mark. That valuation dwarfs most companies listed on South Africa's JSE.
The company's market cap is currently sitting around the $78billion mark. That valuation dwarfs most companies listed on South Africa's JSE.
Scroll over or click on the funnel chart to get more details of SBUX's latest financial results.
Financial review:
Starbucks is sitting on a net profit margin of 14.4%. So essentially for every $100 they receive they make $14.4 in profits after paying all expenses and taxes. Thats pretty strong net profit margins for someone operating in the retail food industry. No doubt a bit of a premium is charged thanks to their brand name.
Diluted earnings per share came in at $0.51 a share for the quarter. This places SBUX on a PE ratio of around 26 (assuming the last quarter of the fiscal year's earnings will be the same as that of quarter 3). The PE ratio is pretty high. Seems punters expect SBUX's global expansion to bring in strong future profits. As investors are not investing in for its dividend yield. SBUX is currently sitting on a dividend yield of 1.49% (assuming the dividend paid in the most recent quarter will be paid in the last quarter of the financial year too).
Diluted earnings per share came in at $0.51 a share for the quarter. This places SBUX on a PE ratio of around 26 (assuming the last quarter of the fiscal year's earnings will be the same as that of quarter 3). The PE ratio is pretty high. Seems punters expect SBUX's global expansion to bring in strong future profits. As investors are not investing in for its dividend yield. SBUX is currently sitting on a dividend yield of 1.49% (assuming the dividend paid in the most recent quarter will be paid in the last quarter of the financial year too).
Cash generated by operating activities for the 3 months amounted to $3266.9million (or roughly $2.20 a shares). Showing SBUX is a very strong cash generative business (as most of their sales are cash based) and no real purchasing on credit takes place. Cash and equivalents at then end of the three months amounted to $2141million (or $1.41 a share).
Pie chart shows revenue and operating profit earned per region for SBUX:
Pie chart shows revenue and operating profit earned per region for SBUX:
From the pie charts above it's clear that SBUX earns the majority of their revenue in the Americas (around 77% of revenue infact). China and Asia pacific brings in only around 17% of revenue and EMEA around 6% of revenue. Margins are also under pressure in the EMEA region as it brings in 6% of revenue but only 2.7% of operating profits. This is confirmed in their financial results where they state their operating margin in America's and China/Asia pacific is around 24% but in the EMEA region only around 10%.
A few financial ratios for SBUX (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 1.42 (more than 2 shows high levels of financial leverage).
- Current Ratio: 1.14 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 0.83 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 5.45%
- Return on Equity (ROE): 13.18%
- Net Profit Margin: 14.40%
- Dividend Yield: 1.41%
Valuation:
Based on SBUX's current financial results we value them at between $51.19 and $51.26. We therefore feel that at it's current price it is close to being fully valued and would suggest that value investors look elswhere if they bargain hunting. Still a great stock to hold, but we suggest looking to buy at levels below or around our valuation mark at $51. SBUX share price has come down a lot in recent months. And we think it is better priced now and close to where it should be trading at. Thus we see limited downside risk from its current price but we see limited upside potential in the near future.
For South African investors, please remember exchange rate movements will have an impact on the value of your SBUX shares when the value is calculated in Rand terms.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)
For South African investors, please remember exchange rate movements will have an impact on the value of your SBUX shares when the value is calculated in Rand terms.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)