The S&P500 And Nasdaq Composite are at record highs, which could lead investors to believe there are no solid buying opportunities.
However, some well-known companies have not benefited from the broader market recovery. Coffee house giant Starbucks (NASDAQ:SBUX) is one of them. Shares are currently 38% below their all-time high.
Here’s why I think it’s a no-brainer stock to buy at $100 right now.
Focus on the long term
Starbucks severely disappointed its shareholders when it reported second-quarter 2024 financials on April 30. Sales amounted to just under $8.6 billion, while diluted earnings per share amounted to $0.68. Not only were both of these key figures below Wall Street analyst expectations, but they also fell year over year. This is not what investors want to see from an industry giant.
“In a very challenging environment, this quarter’s results do not reflect the strength of our brand, our capabilities or the opportunities ahead,” CEO Laxman Narasimhan said in the press release.
The battle was not specific to any particular region. Same-store sales fell by 3% and 11% in the top two markets, the US and China, respectively. Customer traffic dropped
It’s so easy to get caught up in the short term. But I urge investors to maintain their focus on the next three to five years. Seen in this light, it’s not hard to be a little optimistic about Starbucks’ prospects.
The management team believes the company can expand its store base by approximately 40% to 55,000 by 2030. And as part of its ‘Triple Shot Reinvention’ turnaround plan, Starbucks aims to increase efficiencies and implement cost savings. In this way, the company can help increase sales and earnings per share. For a company that seems ubiquitous, it’s nice to know there are still opportunities to grow.
Competitive strengths
The restaurant industry more broadly – and the retail coffee niche in particular – is incredibly competitive. Consumers have a seemingly unlimited number of choices. And no barriers to entry exist in the industry. Starbucks has managed to distinguish itself from the crowded field because the company has important competitive strengths.
Not many people would argue with the fact that Starbucks has one of the most recognizable brands in the world. Developed over decades, this brand drives customer loyalty and pricing power. The company has created a certain status around its drinks, which allows it to charge high prices for standard products. This helps explain Starbucks’ gross margin average of 26% over the last five years.
This position is strengthened by operating a best-in-class digital platform. There are currently 32.8 million Starbucks rewards members in the US, a figure that continues to rise. This gives the leadership team a valuable engagement channel that also helps drive repeat purchase behavior.
Plus, with nearly 39,000 stores worldwide, there aren’t many restaurant concepts as big as Starbucks. This means it can better deploy its resources to obtain favorable real estate locations for new stores, attract employees with better benefits and benefits, and spend marketing dollars to reach a much broader audience.
Starbucks’ brand and size give me confidence in its staying power over the next decade and beyond.
The right time to buy
As of this writing, Starbucks shares are 38% below their peak, a milestone they reached in July 2021. There’s a lot of pessimism around the company and its near-term prospects, and that’s understandable. Shareholders are concerned that the financial situation will start to improve sooner rather than later.
But for long-term investors – those who can look ahead to the next five years – this is an attractive buying opportunity. The stock is trading at a future price-earnings ratio (P/E). of 21.7, which is about the cheapest in the last two and a half years.
If you have $100 (or whatever amount) ready to put to work, Starbucks should be a top investment candidate to consider.
Should You Invest $1,000 in Starbucks Now?
Before you buy shares in Starbucks, consider the following:
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Starbucks. The Motley Fool has a disclosure policy.
1 No-Brainer Stock to Buy Now with $100 was originally published by The Motley Fool
