Looking at Starbucks

I don’t have much that is profound to say with this graph, but I spent some time making it and didn’t want it to go to waste. This is the share price of Starbucks ($SBUX) along with its earnings-per-share.

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The share price is in black and it follows the left scale. The earnings are in yellow and follow the right scale. The red line is Wall Street’s consensus. The two lines are scaled at a ratio of 25 to 1 so whenever the lines cross, SBUX’s P/E Ratio is exactly 25.

The point I wanted to get across is how rapidly SBUX’s valuation has grown over the last year. It’s also interesting to see, despite some wild stock moves, how stable SBUX’s earnings growth appears to be.

I can’t say if 25 is the right P/E Ratio for Starbucks. I used 25 simply because I think it makes the chart look best. In 2006, SBUX traded at more than 56 times earnings.

I want to make it clear that looking at a stock’s P/E Ratio is just one way to analyze a stock. To get a full picture, there are many other metrics you must look at. I was struck by how dramatic the recent run-up is. The company is also benefiting from a steep drop in coffee prices. Personally, I don’t think Starbucks would be a bargain unless it dropped to $60 per share.

Posted by on September 16th, 2013 at 2:57 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.