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In regards to "where's the bottom?" I suspect it is/was around 28. Each time down there support has appeared.
I still am not keen on SBUX for next 12 months because of encroachment in their old markets, the limited supply of cheap beans left in their pipeline, and because some markets they are stretching for in Washington, while I'm glad they are doing so, are in smaller, also-ran locations (I just visited one in Ellensburg, WA).
I am bullish long term (2+ years), but don't think there is any hurry.
I have no position at the moment, nor have I since around January.
A few years ago I ramped up considerably on the long side because of the previous bulge in prices in wholebeans that had dissapated. This time I'm bearish on how the price hikes have occurred. Previously (when prices briefly spiked to around $2 per pound), Starbucks had raised prices around 15%, yet the whole bean cost came back down to below a buck a pound. I knew that a fat windfall would come, and so invested heavily (for me) and sure enough, it happened last year.
This time, however, whole sale prices have not only climbed higher, they've stayed higher. In addition, they have tried to hold the line somewhat on prices, and the stock price has remained high whereas last time the stock price dropped quite a bit. So, I think that the opposite will happen in six months, with a give-back occuring as they try to keep their customer base happier with less agressive pricing while at the same time will find it necessary to start securing contracts at much higher prices. Net result I think will be a temporary slowing of earnings growth.
Compound that on sheer numbers (with so many stores now, it will be difficult to ever hit +40% again) and my estimate that SBUX will have to dilute around 10-12 months from now at the latest, and you can see why I'm in no hurry.
I would consider buying at the very lowest end of their trading range, at around 28. I'd consider selling at 36+.
Enough of this, time for some more Arabian Mocha Java! |
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