So we know SBUX has been a fabulous investment up to this point. But what might a SBUX investment look like going forward? Can the growth continue given there is a SBUX on just about every corner in the U.S.? As a matter of fact, it looks like their overseas growth is in its early innings. On the most recent earnings call, CEO Howard Schultz made the point that there is decades of growth ahead. They are literally opening a Starbucks every 15 hours in China and the company's formal guidance is 15-20% earnings growth for the next two decades.
So, let's do the math on a potential investment in SBUX. Analysts (per Yahoo Finance) project SBUX will earn $2.10 per share this year and the stock currently trades at just over $60 per share. If SBUX compounds earnings at a 15% clip for the next 20 years, they will be earning $34 per share in 2037. By that time, their days of rapid growth will be over and something like a stock multiple of 20x each dollar of profits sounds reasonable. Their current multiple is approximately 30x each dollar earned, so we're assuming in this calculation SBUX stock will permanently lose 1/3 of it's value to multiple compression.
Give these assumptions, SBUX stock will still be worth $680 ($34 x 20) per share in 2037 excluding all the dividends you received each quarter. That's a growth rate in your stock price of 13% per year. Very good but, frankly, a far cry from the enormous 20% annualized gains over the last 21 years.
The tricky part in all this, is being able to hold on for two decades. There will be many times when SBUX doesn't grow as fast as expected for some period of time and that will cause the stock to sell-off shedding many investors. There will be multiple bear markets, corrections and recessions which will negatively impact the stock price and that, too, will cause many investors to panic, hit the sell button, never get back in and miss out on the corresponding rise in SBUX stock price as their operational results continue their upward march. But if you have the mindset of buying a piece of ownership in a great, growing company and refuse to part with your shares when the going gets tough, you usually are rewarded with great riches decades down the line.
This is the type of investment I search for at Solitude Canyon for myself and my clients. Of course, I may well be completely wrong and some new coffee megastore comes along and puts SBUX out of business in a decade. No one really knows for sure...but if spread your wealth into lots of SBUX type companies and never sell them, enough of them will be huge, life-changing winners that the handful of losers won't even matter.
Disclosures: I/We own Starbucks stock
This website is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities in the Company or any related or associated company. Any such offer or solicitation will be made only by means of the Company's confidential Offering Memorandum and in accordance with the terms of all applicable securities and other laws. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. Accordingly this website does not constitute investment advice or counsel or solicitation for investment in any security. This website does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. The Company expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in the website, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly on this website, or indirectly via link to any unaffiliated third-party website, will be profitable or equal to corresponding indicated performance levels.
Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.