Thinking about buying Starbucks (SBUX)? Watch this video first. (August 05, 2016)
SBUX HB
In this Free Chart Video I want to look at Starbucks ( NASDAQ:SBUX ); and this is why: Recently Cramer endorsed this stock from a fundamental standpoint. Whereas a technical analyst that he works with thinks it’s actually a good short. So I thought it would be interesting; and this is a note from several days ago so I’m not giving away any premium information or anything like that. If anyone thinks I am then I apologize, it’s certainty not my intent. But I just thought it’s interesting to talk about a stock where apparently the fundamentals are pretty compelling. Technically, not so much.
So lets look at Starbucks ( NASDAQ:SBUX ) here. I want to show you something. From a fundamental standpoint, I use MarketSmith, it’s an IBD product, just for my fundamental stuff, just kind of down and dirty stuff (I’m going to slide it over, I’ll be sliding it around a little bit, so if you get vertigo just listen to me and don’t look). The first thing that I look at when I’m checking out fundamentals on a company is, what’s their growth rate? Now, this is over the last 5 years, they’re kind of an average growth rate, they use the least squares method, which is everything I know about their method, what it’s called. It’s really cool apparently. I don’t care because it’s all the same. It’s like if you’re using one reference point for all stocks, as long as you generally know what it is, you don’t have to know THAT much about it. Here, in this case, again, it’s like average 5 years growth rate. And then the P/E is 32.
Now there is a school of thought that basically says the P/E can be twice the growth rate, that’s the peg ratio, price earning over growth. The P/E can be twice the growth rate and the stock is still compelling. So here we’ve got a growth rate of 20, we’ve got a P/E of 32, so that meets that criterion, which is fine. That doesn’t meet MY criterion because I like companies that grow more, and then I look at fundamentals. So, I want to look at these quarter by quarter, and this is what we’re looking at: The quarter ended September 30, 2015, that’s this one versus the same quarter this year. The same quarter this year, in 2015 here, versus the same quarter the year before, meaning 2014. Same quarter this year, the current one, December 31, versus the one the prior year, 2014. The same one, the current one, March 31st, 2016 versus the prior one. And we’ve got to get back to this one and this year versus the prior. And this tells you what they are, like 17 percent growth. This quarter ended June 30th versus the same quarter last year ended June 30th, 2015. So we’ve got a 17 percent growth here. We’ve got an 18 percent growth here. We’ve got a 15 percent growth here. And a 16 percent growth there. That’s pretty good, earnings growth, that’s pretty good.
Now, if we look at revenues, same deal only that is this line down here. Plus 7, plus 9, plus 12, plus 18. What do you notice about that? Plus 18, plus 12, plus 9, plus 7. It looks to me like their revenue growth is actually declining with each quarter. THAT’S A PROBLEM. But STILL we got all blue numbers, which we like, we like blue numbers. So that’s the fundamental take on Starbucks ( NASDAQ:SBUX ) is, okay, I get it, average growth rate about 20 percent, and you can see the numbers are a little bit less than that. But whatever, 5 years. Average growth rate 20 percent. P/E 32 percent, but once again I see this declining revenue. Earnings are slight growth, but frankly you can monkey around with earning any way you want, and Howard Schultz does. So what that tells me is, fundamentals are okay, but they’re not totally compelling, they’re just not horrible. And so that leads us to the chart.
Ultimately what matters is if you are buying low and selling high, period. Nothing else matters, it can be for any number of reasons, why a stock goes up. You can have a company with the best fundamentals in the world, and if you buy at 50.00 and it’s now down at 25.00, you’ve been wrong for 25 points. So with the fundamentals okay but not great, I’m looking at the chart and my default is, maybe, maybe not. But do I really want to get a stock like this? And this is my technical analysis: Here, ABSOLUTELY. This is an uptrending stock, I don’t care if the company is shrinking. This is the kind of uptrend that you want. Then everything sold off, I know, this is August 24th. How do I know that? Because everything sold off that day. And then we get a repeat rally. FINE. That was then, this is since then. And what do we have? We have declining highs. Here’s the bottom, right here, lets get a level here, 53.00, we’ll call it $53.00 is our price level. That is where support is on this stock.
But just look at this right now. Does this look like a stock that you want to buy right now? From Cramer’s standpoint, sure, because he likes the fundamentals. From a technicians standpoint, no. Apparently this guy thought it was a short. I wouldn’t short this stock. But maybe it will be a buy later on. But you’ll really see what’s happening if you look at the weekly chart. See, really nice uptrend, and then a pullback that lasted half a year. Sideways consolidation, then we had a nice uptrend. Now we’ve got a pullback again that’s lasted more than half a year. If you had bought here, you’ve got to wait for 7 months. You’ve got to wait a long time in order to start making money. That’s why I’m saying here, fundamentals, if you like Starbucks ( NASDAQ:SBUX ), go get a coffee. You can even order it on your PDA, which is why they employ less people than they used to. But the ones that they do employ, Hey! they pay them $15.00 an hour. Go figure how that works out. Just a coincidence I’m sure.
But don’t be buying this stock when it’s essentially trending lower. WAIT until the stock starts trading higher. I would require it to trade above $60.00. Put another way, look at it this way: This is the 200-day moving average, the red line on the other chart, 40-week moving average, same thing. REQUIRE this thing to for once make a higher high. Look how much you’re giving up, if you’re waiting for the close above the 200-day moving average you’re giving up a little over 6 percent. Okay, fine. Frankly, in my view, that’s a small price to pay for the certainty that at least the stock is starting to print higher highs. But generally speaking, great, nice, that the fundamentals are good. Wonderful, we love Howard Schultz, I guess. The dividend, not particularly impressive. The chart is actually quite bearish. I’ve got to just go for the double latte, but forget the stock.
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