Is Starbucks A Value Trap?

The Starbucks share price has taken a hit after the recent company update which suggested a slow down in the US and the closing of some stores in that region. Should we be worried? We don't think so.

First and foremost, the company plans on returning $25bn to shareholders in the next 2 years via share buybacks and dividends. At the current market cap of $70bn, that is a guaranteed return of 35% in two years. I remember when Apple was in a similar position trading at $90 a share and offering shareholders big buybacks and dividends.

Secondly, we feel the market underestimates their growth potential in Asia. Sometimes US investors are too focused on sales in the US. This happened more recently with Nike.

Many clients may feel Starbucks has been a poor investment. But that is all relative. We started buying Starbucks in 2012 when they were trading at $25. They went through a fabulous run, going from $25 a share to $60 (accounting for share splits) in 3 years. Since 2016 they have pretty much gone nowhere share price wise. In that time earnings have continued to grow. The share now trades at 18 times forward earnings, the cheapest it has been in ages. Plus you are getting 35% returned to you in 2 years.



We think this is a good buying opportunity. Stocks like Apple, Nike and Alphabet have all gone through recent slow patches. These periods have been proven to be very good buying opportunities.