Will Starbucks stock stop falling now?
Posted
Dec 11 2007, 05:14 PM
by
Douglas McIntyre
Rating:
It seems that no investor on Earth wants anything to do with Starbucks. Even Goldman Sachs, which has had a "buy" on the stock dropped it to "neutral" today. The move shows how late research analysts can be when changing their minds. Starbucks slipped to $21.90 on the news. But, it had already fallen from a 52-week high of $36.99 reached almost a year ago.
Now that Starbucks has been abandoned by Wall Street, it may begin to move up again.
Usually, when McDonald's put out strong same-store numbers, Starbucks takes a slide. The huge restaurant chain has been getting more of its sales from premium coffee. Investors assume that those sales used to belong to Starbucks. But, this month, the McDonald's figures did not send Starbucks holders heading for the exits.
The coffee company should start to benefit from the law of modest expectations. The market no longer sees Starbucks as a growth stock even though revenue is still moving up at the rate of about 20% a year. If the company can prove that its expanding number of stores is not killing sales-per-store, the shares may well bounce up.
Starbucks has made a fairly big mistake in not announcing its store sales once a month like many chains do. Investors have to wait for quarterly numbers. So, while shareholders sweat out the release of the next set of figures, the company is doing a few things to improve its prospects. Starbucks has begun an aggressive marketing campaign, including TV, to move more traffic into its stores. And, the company says it is going slower on U.S. expansion. In other words, management is "talking down" expectations. That usually means that are setting a bar which they can clear with ease.
