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.

Can Starbucks Pull This Off?

Starbucks' (SBUX) plan to right their ship got bolder yesterday, as they upped their previously-stated plan to shrink the company. Instead of closing 100 stores, they will close 600 stores and lay off 12,000 employees.

It will be interesting to see how the transition goes and whether they can pull it off. SBUX has only ever been a growth company. Growing quickly is difficult, but can mask a lot of sins and imperfections. SBUX's revenues have nearly tripled since 2002 without a down year.

SBUX has close to 6,800 stores in the U.S. Is it true that a few hundred are unprofitable and the rest can chug along just fine, or has their stranglehold on the expensive coffee market weakened? It's possible that tastes have changed.

There are two issues in my opinion. Can management shift from prioritizing revenue growth to prioritizing profitability? Have U.S. consumers had their fill of SBUX?