Tuesday, November 11, 2008

Is Starbucks Cheap?

"Valuation is a result, not a catalyst." Philip E. Laverson

Starbucks' stock has spent the last two years going from $38 to $10. They reported earnings last night. It's obvious that Starbucks' business model struggles in an economy as lousy as this one is. It's also unlikely that many people want to step in and buy broken stories here. But is the stock cheap?

The stock was $38, now it's $10. It's still a marquee franchise. Who would rather pay $38 than $10?

It's still not a buy in my opinion.

It's not cheap based on current earnings - they earned a dime in the quarter. Not cheap relative to its growth rate - they're not really growing any more. It might be cheap based on future earnings but in all likelihood we will need to see a much better economy to get there. If you are expecting a much better economy any time soon, there are easier fish to fry.

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