Starbucks Stock Has Had a Good Year. Here’s Why the Run Isn’t Over Yet.
When I recommended Starbucks (SBUX) at the beginning of the year as my top stock to buy for 2019, it was partly on the premise that the stock had not only survived the 20% market correction in the fourth quarter of 2018, but thrived during it. SBUX stock was actually up double digits during those turbulent three months. I figured that boded well for its prospects once the market got going.
Turns out I was mostly right.
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With just a couple weeks to go until the New Year, Starbucks shares are up more than 36% in 2019, ahead of the 30% gain in the S&P 500. And looking at the chart, another big break higher could be forthcoming. In fact, it might have just begun…
The outperformance was much more pronounced in mid-summer. But after topping out at 99 in late July, SBUX stock declined pretty steadily for about three months, bottoming at 81 in the second week of November. Unlike what happened in late 2018, this time the stock didn’t hold up well amid market turbulence.
But it has since rallied in a very encouraging way – not all at once, but stair-stepping higher, with higher highs and higher lows along the way. Currently trading just below 88, it’s comfortably back above its 50- and 200-day moving averages, but still 11% below its late-July highs. It’s the pattern of a stock that appears to be forming a fresh rally.
Steady sales and earnings growth could help the stock higher. Analysts anticipate 7.4% EPS growth and 7.1% sales growth in 2020, and the company has beaten estimates by an average of nearly 8% in the last four quarters. So those estimates could be conservative.
The price-to-earnings (P/E) ratio is 30, with a forward P/E of 25, meaning SBUX’s share price isn’t too out of whack, particularly for a growth stock. My guess is any valuation concerns investors had about the stock were doused during its steady comedown from July through October.
Sprinkle in the modest dividend payout (1.9% yield), and there’s a lot to like about SBUX if you’re a growth investor or a value investor. It may not jump another 36% in 2020, mostly because a second straight year of 30% gains for the market seems unlikely with uncertainties like a presidential election and a possible recession looming next year. But if earnings don’t disappoint, there’s no reason to believe Starbucks stock won’t continue to trend higher into 2020 and beyond, particularly after getting taken down a few pegs.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!