Starbucks (NASDAQ: SBUX) stock investing has been frustrating lately. In the previous five years, its shares have risen 12%, trailing the S&P 500's 77% growth. Don't give up. Always think long-term while considering investing. This approach makes Starbucks bullishness easier. This undervalued restaurant stock has three reasons to purchase now.
1. Strong brand identification Starbucks is over 50 years old. That's astonishing in the hyper-competitive restaurant industry, which fails frighteningly often. The company's competitive moat has kept it ahead of the competition for so long.
Starbucks' brand recognition generates moat. Coffee and food are commoditized products sold by the corporation. However, it has elevated its brand image to appeal with consumers, allowing it to demand premium prices. I think a new entrant would struggle to reach Starbucks' level. Due to client satisfaction, this takes years and decades to build.
Company emphasis on digital investments boosts the brand. It boasts one of the most effective loyalty programs in corporate America, with 34 million active U.S. members who drive sales. Creating a valuable interaction channel and encouraging repeat purchases increases loyalty.
2. Growth prospects Starbucks has 38,587 outlets worldwide. Revenue was $34 billion in fiscal 2023 (ending Oct. 1). This is a massive organization. Don't despair—there's still room for improvement.
Starbucks management believe it can open 55,000 outlets worldwide by the end of the decade as part of its Triple Shot Reinvention plan. That expansion will be mostly from China. Over time, Starbucks aims to open more than 3,000 locations in the U.S., its mature home market.
Smaller, digital-focused retail stores are important to the plan. Some Starbucks customers are less interested in visiting than they were a decade ago. The goal is to service customers at their convenience.
This outlook makes Starbucks' financial indicators seem likely to improve. Revenue and EPS are expected to climb 10% and 15% annually over time, according to the executive team.
3. Reasonable value The stock's value is appealing in addition to its strong brand and growth potential. Investors can buy shares at a 21 P/E ahead. That matches the S&P 500. In early 2022, the stock had a forward P/E of nearly 40. Today, enthusiasm is much lower.
Starbucks remains quite profitable. Its dividend yields 2.6% and has climbed for 13 years. The corporation repurchased $1.3 billion in shares in its 2024 first quarter, ending Dec. 31. Consider buying Starbucks now because capital allocation decisions enhance investor returns.
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