For grounding purposes, the present situation shows that Starbucks commands a premium in the market. Investors who got caught up recalled the magic of the previous year wherein Starbucks actually stock soared. In fact, this coffee shop seemed to distance itself from others.
There are no signs of natural retracement both in terms of stock price or business performance. So deserters beware. Starbucks stocks are quite stable so there’s no need to worry as to what 2016 might bring. Starbucks is a global coffer juggernaut but unlike its competitors, this establishment definitely stands out.
Starbucks executives believe that the company’s investments will produce an extended payback period and this is good for the shareholders. It’s a good thing that the company built an excellent track record of delivering the profits. Perhaps this is due to the truth that the coffee shop’s customer base is swarming with repeat visitors.
People love the delicious taste of every cup of Starbucks. Building a solid customer base is not rocket science. Starbucks focused on numerous factors such as business execution, technology and employees. Whatever the case, it’s good to know that Starbucks is exhibiting the special type of aggression regarding the future.
With unanticipated external factors on the side, it would be better for the shareholders to be anxious about other stocks in their portfolio for 2016. In the case of Starbucks, it’s best to look further ahead.
Starbucks or Dunkin’ Brands in 2016
Statistics shows that Starbucks is doing much better compared to Dunkin Brands; however, Dunkin Brands stocks are a lot cheaper. So which is the better choice right now?
Starbucks delivered impressive and huge amounts of returns in 2015 and its stocks went up by over 50%. On the other hand, its competitor Dunkin Brands gained a more modest 2.4 percent over the same stretch. Previous performances are no guarantee of future returns.
Investment decisions have to be based on certain forward-looking considerations. With this, can you answer the question as to which coffee stock has more chances of earning better returns in the future?
Starbucks Going Off the Board
Dunkin Brands are smaller than Starbucks when it comes to revenue. Analysts from Wall Street forecasted that Dunkin will make more or less $810 million in sales in 2015. This amount is a small percentage or fraction of the $19.2 billion revenue that was produced by Starbucks during the previous fiscal year.
Remember that a smaller size could make any business more unstable and volatile, but it likewise offers more room for expansion. It is more convenient to sustain fast growth from smaller revenue bases. This would be an essential advantage for those who have invested in Dunkin versus Starbucks.
According to Yogi Berra, “In theory, there’s no difference between practice and theory. In practice alone, there is.” There are glaring evidences that Starbucks has dramatically beaten Dunkin when it comes to revenue expansion and this was seen during years of business operation.
Browsing through the current financial reports, Starbucks continuously came ahead of Dunkin when it comes to growth in sales. Starbucks, a Seattle-based coffee giant has reported a total revenue of $4.9 billion during the September quarter. This is a huge increase from 18 percent during the last period.
This stat shows that Starbucks is still enjoying the vibrant demand, since new store openings aren’t hurting sales at previously existing areas. On the other hand, Dunkin announced a small increase in its revenue which is 8.9 percent last quarter.
Business growth is much more than the simple mathematics of size versus speed. In this regard, Starbucks is far superior than Dunking Donuts in various areas like the management’s capacity to drive growth through product innovation and global brand recognition. Growth allows the company to efficiently sustain a truly exceptional financial performance despite of its relatively huge size.
Value Versus Quality
One of the biggest drawbacks when studying an investment in Starbucks is valuation. This coffee emporium is trading at a steaming high price-to earning percentage around 34 times for the past 12 months. This is a substantial premium compared to the overall market. To compare, the average business on the S&P 500 trades at the P/E ratio was near 19.
To sum it up, Starbucks deserves a valuation that’s way above-average and this is actually based on the business’ brand power was well as successful track record through the years. However, the elevated valuation level reflects high expectations. This is at all times an important risk to watch.
When companies like Starbucks become aggressively valued, there’s very little room for disappointment just in case the company hits a bumpy road. Dunkin isn’t particularly cheap. However, the stocks are a bit cheaper compared to that of Starbucks with a P/E ratio of 26. Valuation has to be compared versus business quality, although Dunkin is no match to its rival, Starbucks in this particular area.