Starbucks Stock Analysis (SBUX)- Is Starbucks Stock a Buy in 2020?

0:00 Starbucks stock analysis Starbucks has conditioned millions of people around the world into paying between 225 and upwards of seven dollars to drink a cup of their coffee daily when that same cup of coffee could be made at home for anywhere between 16 and 18 cents Starbucks stores are everywhere in my home state of Texas I stopped at a random location last Sunday morning which wasn't hard as there were actually five and a four mile radius from where I

0:32 Was and I saw a business that was booming there are actually 855 Starbucks stores in Texas and the saturation of Starbucks stores is not just unique to Texas there are actually over 15,000 in the United States in over 31,000 worldwide what has made Starbucks a smashing success in an industry with intense competition I think that Starbucks is a solid dividend growth stock which pays about a 2% yield at current prices with only a 28% payout ratio which leaves plenty of room for

1:11 Their international expansion efforts after spending a good amount of time researching Starbucks stock I'm going to tell you why I will not be buying Starbucks stock in the near term even though I think it is a solid company the decision to not buy Starbucks stock in the near term is mainly based off of a broader market risk and the current price per share not reflecting this risk if we see another broad market dip which actually might never happen because of

1:39 The Federal Reserve's affinity for printing trillions upon trillions of dollars but I might consider spending more money on Starbucks stock than I ever have on drinking their coffee my name is Blake and today on nine-to-five investing a YouTube channel where we talk about the fundamental and technical analysis behind today's game-changing stocks we are going to discuss Starbucks stock and whoever I think it would make a good in 2020 nine-to-five investing I want to

2:21 Start this video by talking about exactly what Starbucks does to make their money they actually do a lot more than just selling coffee our book sells their coffee from their plethora of stores in countries like the United States United Kingdom China Japan Thailand and more but surprisingly the beverages that are actually sold out of their stores only make up about 59% of their overall revenue Starbucks the second largest category by revenue is simply called other and in this

2:53 Reportable segments we have things like ready-made drinks prepackaged coffees and teas we have licensing and royalty fees and we have beverage related ingredients among just several other very small sources of revenue this reportable segments makes up about 23% of their overall revenue a lot of the money made in this reportable segments about 11% of overall revenue is actually made by licensing the Starbucks trademark and business model to individuals that are interested in

3:25 Becoming licensees basically Starbucks receives a margin on any of these store branded products or supplies needed to run the store and they also receive a royalty on any retail sales made out of the store Starbucks definitely strongly prefers to own their own locations however sometimes individuals that are interested in licensing a Starbucks store are the only ones that have the desirable real estate in an area where Starbucks is wanting to expand into

3:54 Starbucks is very picky about who they license their stores to as they are very focused on maintaining a brand and having control over the customer interactions that oftentimes gets lost when a company goes and just franchises out to anybody who is willing to pay them to be able to franchise their business Starbucks clarifies and their most recently filed 10k that they generally only license their business model and Trademark to those who have extensive

4:20 Business knowledge and experience running a business and also access to retail locations that Starbucks would not otherwise be able to obtain without bringing individuals on Starbucks is third and final segment is basically sales of their food items this includes breakfast sandwiches pastries lunch items and more and this basically makes up 18% of their overall revenue having these items in store is a no-brainer as it is an easy upsell for anyone coming

4:50 In for their morning coffee or their afternoon pickup I think Starbucks also does a great job maintaining their customers and getting every penny they can out of them as they haven't thought where you can basically earn stars for purchasing items these stars can be redeemed for items like coffee food and even reusable cups I think that this app has been very smart move on Starbucks as part as they are constantly giving customers challenges to make them spend

5:20 More money an example that I can recall that I have seen is stop at Starbucks and buy any item for seven days in a row and you get 50 bonus stars so this keeps people spending money with Starbucks it keeps them from going to competitors it UPS the convenience and it gives them incentive basically to spend more money if you are enjoying this video so far please pass that like button like I smashed this broken TV that I bought for $10 off of Craigslist and a potentially

5:48 Unconvincing attempt to convince you to smash the light buggy doing the small actions really helped me grow my channel and reach more people and pursue my passion so it means a lot to me thank you now that we have nailed down the operations side of what Starbucks does I want to take a minute to talk about the evaluation of this dog Starbucks dog has been valued relatively consistently over the last five years if you are using the most common method which is just

6:14 Dividing the price per share divided by the earnings per share which is of course the price to earnings ratio if you look at this graph that I have made you can see that Starbucks stock has been valued with a price to earnings ratio between 18 and 25 over the last five years at the time recording this video a new investor would have to pay a price to earnings ratio of about 28 if they wanted to pick up shares and Starbucks today what does this mean it basically means that for

6:43 Every dollar of Starbucks earnings annually a new investor is going to have to pay about $28 today which in my opinion in normal economic conditions a price to earnings ratio of 28 is a pretty fair price to pay for a company like Starbucks 28 might seem a little high compared to the 8 own price to earnings ratio back in 2017 Starbucks is an iconic brand and on top of that they have consistent revenue growth and this will only likely be accelerated they

7:16 Continue to push into international markets in addition to that I think that Starbucks revenue will be slowed given the entire global situation right now but it will not be absolutely decimated like certain other industries like the cruise lines the airlines and the hotels in other words coffee even if it is expensive coffee is likely to be relatively recession resistant believe it or not some analysts even expect year-over-year growth for Starbucks

7:48 Revenue in 2020 so if there's one word that I would use to describe the revenue growth for Starbucks that word would be consistent if you look at this graph that I have made that I see just nice smooth year after year growth of Starbucks is revenue Starbucks is compound annual growth rate over the last five years is equal to six point seven percent now I know what you're probably thinking right now is 6.7% compound annual growth rate really all that great and my answer to that is I

8:21 Think it is pretty solid considering they've been able to do it just year after year with no hiccups over the last five years and just considering that they're doing this on such a large scale Starbucks actually did twenty six point five billion dollars of revenue at fiscal year 2019 once a company is as established as star it is very hard to see growth rates such as 30 40 or 50 percent because the company is already conducting operations on such a large scale in a highly

8:52 Competitive market that being said I think seeing a 6.7% compound annual growth rate for revenue is super solid and I would be very happy as an investor if we saw this in perpetuity if you look at this next graph I made you can see one of the reasons why Starbucks has had such consistent year-over-year revenue growth this graph of the worldwide store count for Starbucks at the end of each year over the last five years mirrors the revenue graph almost exactly

9:23 Starbucks is constantly building more and more stores around the world and at the same time they're kind of churning through any stores that don't end up being profitable in the long run and closing them down they're actually in 75 different countries as of 2020 I think that the fact that Starbucks is in 75 different countries is favorable I like this diversification just because they're not gonna be completely dependent on any one country's changing

9:52 Preferences or economic conditions as you can see from the graph that I have talked right now Starbucks had a really good year in 2018 for revenue growth that was followed by a slump in 2019 and more than likely 2020 will follow a similar pattern and we have to consider especially in the time period that we are living in now where we are already in a recession or going into a recession or depression a company's balance sheet including things like their cash levels

10:24 And how do those cash levels compared to their long-term debt now we are going to discuss the cash and the long term debt on Starbucks is balance sheet and this is where things can get just a little bit negative or bearish for Starbucks stock if you look at the trends over the last five years of cash and long-term debt this exclusive nine-to-five invested around you could see that dark red line represents long-term debt and this has massively increased from 2018 to 2020

11:00 I think that staggering is an accurate way to describe Starbucks's growth a long-term debt over the last five years as it has a compound annual growth rate of about 52% and that's not over the last two years that is over the last five years compound annual growth rate of 52% a lot of this debt growth in 2020 has to do with the global situation Starbucks wants to make sure that they can survive any prolonged recession or even depression so they took out a lot

11:33 More debt it is what it is with this massive pile of debt and I think it is certainly better than the company going bankrupt or having to do a secondary offering in the future it seems like Starbucks has a habit of keeping their cash reserves stable at about two or three billion dollars this pile of cash never really seems to grow as they pay out about 27 percent to their investors in the form of dividends and seem to spend most of the rest on international

12:04 Expansion I think that overall Starbucks is in a fine position financially as if they ever needed to focus on survivability they could just cut that dividend and on top of that stop pouring so much money into international expansion as their business is a cash cow this ballooning pile of debt it would be nice if they could just make it shrink a little bit in the future instead of growing so rapidly however this is not the thing that would stop me

12:30 From investing in Starbucks stock I will not invest in Starbucks stock in the near term just because there is a lot of broad economic risk with the entire global situation and I do not think that Starbucks is share price adequately reflects this in the last couple of months I have not sold many of my stock positions but I have also not bought into very many new ones either with the exception of down some my other positions and I think that right now it's kind of just maybe

13:03 Smart to just stay a little bit more conservative have a little bit more cash in case we do see another massive market dip based on all my analysis I think that Starbucks is a stock worth sipping on and better economic conditions or at a lower price but as always do not listen to me or anyone else on YouTube when you're making investment decisions I am NOT your financial adviser I have just some guy who has a lot of passion for investing and doing this type of

13:35 Research and making these type of videos but once again I'm not a financial adviser but if you did enjoy the video please subscribe because I will have more content coming your way also if you want to leave any comments questions or anything in the comment section and then feel free to do so I will reply to anything anyone leaves thank you very much for watching the video have a great day and never forget to stay hydrated 9 to 5 investing