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Starbucks Stock Analysis | SBUX Stock | $SBUX Stock Analysis | Best Restaurant Stock to Buy Now? - YouTube
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hello and welcome back to global value in today's聽
video we will be taking a look at starbucks and we聽聽
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will be performing a fundamental stock analysis of聽
starbucks starbucks trades on the new york stock聽聽
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exchange under ticker symbol sbux but before we聽
get into the company let's remind ourselves of聽聽
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the four principles of value investing principle聽
number one when you purchase a share of stock what聽聽
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you're really buying is an ownership percentage聽
in the underlying business and over long periods聽聽
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of time a stock is going to return what its聽
underlying business returns principle number two聽聽
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mr market is there to serve you not to educate you聽
and this means that price does not always equal聽聽
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value principle number three in order to mitigate聽
risk investments require a sufficient margin聽聽
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of safety this helps to achieve superior risk聽
adjusted returns over the long run and finally聽聽
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principle number four for any investment you聽
need to stay within your circle of competence聽聽
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maintain intellectual humility don't invest聽
in a business unless you truly know it inside聽聽
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and out just like an owner would now looking at聽
starbucks currently starbucks is trading at just聽聽
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over 80 dollars a share over the past year聽
starbucks has taken a pretty significant fall聽聽
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dropping 31 percent starbucks is still聽
up almost 11 compounded annually per year聽聽
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going all the way back to 2005 even incorporating聽
the great recession starbucks has maintained that聽聽
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pretty steady 11 compounded annual growth rate聽
starbucks is currently just a dollar over its聽聽
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52-week low so starbucks is trading really聽
close to its 52-week low and they are 40聽聽
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off of their 52-week high starbucks is the world's聽
second largest restaurant chain behind mcdonald's聽聽
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their market cap is 91 and a half billion dollars聽
for some more background about starbucks starbucks聽聽
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is one of the most widely recognized restaurant聽
brands in the world operating more than 34 000聽聽
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stores across more than 80 countries as of聽
the end of the first quarter of fiscal 2022聽聽
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its stores offer coffee and tea beverages roasted聽
whole beans and ground coffees single-serve聽聽
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products ready-to-drink beverages and various food聽
products such as pastries breakfast sandwiches and聽聽
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lunch items the firm operates in three segments聽
north america international markets and channel聽聽
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development which consists of grocery and ready to聽
drink beverages the coffee chain generates revenue聽聽
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from company operated stores royalties sales聽
of equipment and products to licensed partners聽聽
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ready to drink beverages packaged coffee sales and聽
single serve products the company was founded in聽聽
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1971 and is based in seattle washington recently聽
starbucks has been in the news because their聽聽
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former ceo kevin johnson has announced聽
that he is stepping down and retiring聽聽
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in his absence howard schultz is stepping back聽
into the role as starbucks ceo for the third time聽聽
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now as such howard schultz is having to deal with聽
a growing movement to unionize starbucks stores as聽聽
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well as an uncertain macro economic environment聽
now that we've got some background on starbucks聽聽
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reminded ourselves of the four principles of value聽
investing and seen how starbucks stock has done聽聽
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let's get right into the fundamental analysis聽
of starbucks stock by looking at its financials聽聽
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the first metric we're looking at pillar number聽
one is the five year average pe of starbucks聽聽
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so we're looking for starbucks price to earnings聽
over the past five years to be below 22 and a half聽聽
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starbucks has traded at an average p e of 48.聽
however currently it's down to 21 and a half聽聽
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so despite the current low in p e this is still聽
going to be an x as that five year average p e聽聽
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was 48. next we're looking at starbucks return on聽
capital over long periods of time a stock is going聽聽
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to return what its underlying business returns and聽
returns on capital are gonna be those returns so聽聽
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starbucks had pretty phenomenal returns on capital聽
prior to the pandemic although 2020 was a very聽聽
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rough year for them because of the pandemic but it聽
looks like they are bouncing back so averaged out聽聽
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starbucks has returned 37 and a half percent聽
return on capital over the past five years this聽聽
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is about four times that nine percent that we聽
were looking for so this is gonna be our first聽聽
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check pillar number three we're looking聽
for five-year revenue growth so in 2017聽聽
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starbucks did 22.4 billion dollars of revenue聽
and in 2021 they grew that to 29 billion dollars聽聽
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of revenue so that's another check pillar number聽
four we're looking for five-year net income growth聽聽
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in 2017 starbucks had 2.9 billion dollars of net聽
income and in 2021 they had 4.2 billion dollars of聽聽
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net income so that's another check three checks in聽
a row next for pillar number five we're looking at聽聽
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starbucks share count we don't want any聽
business to be diluting existing shareholders聽聽
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so starbucks over the past five years has聽
bought back shares so in 2017 they had 1.4聽聽
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billion shares outstanding and in 2021 they had聽
1.2 billion shares outstanding one thing to make聽聽
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note of is that this is not likely to continue as聽
one of howard schultz's first moves coming back聽聽
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was to cut this share buyback and to focus聽
on reinvesting in store processes and聽聽
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staff even given that it's probably unlikely聽
that starbucks is going to be issuing new shares聽聽
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but that's something to watch for however this is聽
another check on pillar number five so far we have聽聽
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one x but the last four pillars have been checks聽
next for pillar number six we're looking for five聽聽
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year free cash flow growth free cash flow is cash聽
from operations minus capital expenditures in 2017聽聽
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starbucks had 2.7 billion dollars of free cash聽
flow and that grew in 2021 they had 4.5 billion聽聽
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dollars of free cash flow filling in the other聽
years in 2018 they had 8.7 billion dollars of free聽聽
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cash flow in 2020 they had 3.2 billion and that聽
shrunk to just 100 million of free cash flow in聽聽
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2020 during the pandemic averaged out however this聽
comes out to an average five-year free cash flow聽聽
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of 3.8 billion dollars so we're gonna need that聽
in pillars seven and eight as i said starbucks has聽聽
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had free cash flow growth so this is another check聽
on pillar number six so even though we started off聽聽
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with an x we've got five checks in a row next for聽
pillar number seven we're looking at how starbucks聽聽
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utilizes leverage so we're looking at net debt聽
which is debt minus cash equivalents compared to聽聽
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that five year average free cash flow multiplied聽
by five and taking a look at the chart we can聽聽
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actually see that starbucks utilized very little聽
debt until recently however currently they have聽聽
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17 billion dollars of net debt multiplying their聽
five-year average free cash flow which was 3.8聽聽
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billion times five gives us 19 billion dollars so聽
that is gonna be another check there if starbucks聽聽
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had the same cash flow profile over the next five聽
years as they did in the past they would have聽聽
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two billion dollars to spare after paying off聽
all of their debts and last but not least pillar聽聽
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number eight we're looking at starbucks market cap聽
compared to its average five-year free cash flow聽聽
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multiplied by 20. this pillar is designed to give聽
us a rough estimate of what would be a reasonable聽聽
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price to pay for the company based on an average聽
free cash flow profile currently starbucks market聽聽
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cap is 91.4 billion dollars multiplying聽
their 3.8 billion of average free cash flow聽聽
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times 20 brings us to 76 billion so that is going聽
to be an x on pillar 8 off by about 15 billion聽聽
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or so so in summary starbucks checks the box聽
on six out of eight pillars it looks to be a聽聽
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great business that earns very high returns on聽
capital it's growing revenues net income and聽聽
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free cash flow even despite some of the setbacks聽
because of covid they've increased their amount聽聽
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of debt recently although it's still manageable聽
and although they've bought back shares over the聽聽
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past five years that's not likely to continue聽
overall i would say that starbucks looks like聽聽
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it's a great business however the two pillars聽
that were x's had to deal with its valuation聽聽
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so based on those metrics starbucks could still聽
be a little expensive this is a business that聽聽
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me personally i'm keeping on a pretty tight watch聽
list one thing to note about the business is that聽聽
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as it expands for each new location that starbucks聽
opens that store is able to produce profits聽聽
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that pay back that investment in about two years聽
or so so that is pretty incredible and starbucks聽聽
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is able to have a really high density of stores聽
well guys that's it for today's stock analysis聽聽
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of starbucks corporation ticker symbol sbux if you聽
enjoyed the video please be sure to like the video聽聽
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and subscribe to the channel for more stock聽
analysis videos and comment down below what聽聽
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business you want me to take a look at next thanks聽
for watching to the end and have a great day
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