Starbucks Corp (SBUX, Financial) recently exhibited a daily gain of 3.41%, though it has faced a 3-month decline of 15.97%. With an Earnings Per Share (EPS) of 3.63, the question arises: is Starbucks modestly undervalued? This analysis delves into the intrinsic valuation of Starbucks to provide investors with a clearer picture.
Company Overview
Starbucks is a globally recognized coffeehouse chain, operating over 38,000 stores in more than 80 countries. As of the end of fiscal 2023, the company's segments include North America, international markets, and channel development. Starbucks generates revenue through company-operated stores, royalties, sales of equipment and products to license partners, and the sale of packaged coffee and single-serve products. The current stock price of $77.85 significantly contrasts with the GF Value of $109.53, suggesting a potential undervaluation.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true value of a stock, calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. For Starbucks, the GF Value suggests that the stock is trading below its fair value, indicating that it is modestly undervalued and may offer higher future returns relative to its current market price.
Financial Strength and Stability
Investing in a company with robust financial health is crucial. Starbucks' cash-to-debt ratio stands at 0.12, positioning it below 72.22% of its industry peers. The overall financial strength rating of 5 out of 10 suggests that Starbucks has a fair level of financial stability. Below is a depiction of Starbucks' debt and cash flow over recent years.
Profitability and Growth Metrics
Starbucks has maintained profitability over the past decade, with a revenue of $36.50 billion and an operating margin of 15.24%, ranking well within its industry. The company's long-term growth rate and its ability to sustain high profit margins underscore its strong market position and operational efficiency.
Comparative Analysis: ROIC vs. WACC
Starbucks' Return on Invested Capital (ROIC) is 15.94%, significantly higher than its Weighted Average Cost of Capital (WACC) of 7.84%, indicating efficient value creation. Below is the historical comparison of Starbucks' ROIC and WACC.
Final Thoughts
Overall, Starbucks appears to be modestly undervalued, presenting a potentially attractive investment opportunity. The company's solid financial health, consistent profitability, and effective capital allocation reinforce its position as a viable contender for long-term investment. For more detailed financial data, visit Starbucks' 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
