Up 22% This Year, Is Starbucks a Buy?

As an avid investor and coffee enthusiast, I've been keeping a close eye on Starbucks (SBUX) this year. With a 22% increase in share price, it's natural to wonder if Starbucks is a buy. Let's dive into the key factors contributing to Starbucks' performance and assess its valuation to make an informed decision.

First, let's acknowledge the elephant in the room: Starbucks' share price surge this year is impressive. But is it sustainable? To answer this, we need to examine the factors driving Starbucks' growth and assess their long-term viability.

1. Strong Sales Growth: Starbucks reported a 20% increase in global store sales year-over-year in 2021, led by a strong 22% average increase in sales across all North American stores. This growth is a significant contributor to the company's share price increase. However, it's essential to consider that these sales figures may have been boosted by pent-up demand following the COVID-19 pandemic. As the economy returns to normal, we may see a slowdown in sales growth.
2. Expansion and Innovation: Starbucks has been expanding its global footprint and innovating its product offerings. The company plans to open 500 new outlets in the Middle East in the next five years and has been introducing new products and services, such as its digital rewards program and mobile ordering. While these initiatives are commendable, they also come with significant upfront costs. Investors should monitor Starbucks' ability to maintain its growth momentum while managing these expenses.
3. Strategic Acquisitions: Starbucks' acquisition of the remaining shares of its East China joint venture in 2021 has also contributed to its share price increase. This acquisition has given Starbucks full control over its operations in the region and has opened up new growth opportunities. However, investors should be aware of the potential risks associated with expanding into new markets, such as regulatory challenges and local competition.
4. Sustainability Initiatives: Starbucks' commitment to sustainability and social responsibility has resonated with consumers and investors alike. The company's initiatives, such as providing easy access to reusable to-go cups, implementing electric vehicle charging stations, and reducing company-wide waste by 50% by 2030, have contributed to its positive image and share price increase. However, investors should be mindful of the potential costs and challenges associated with these initiatives.

Now, let's examine Starbucks' current valuation to determine if it's overvalued, undervalued, or fairly valued.

1. Price-to-Earnings (PE) Ratio: Starbucks' current PE ratio is 36.31. While this is higher than the historical average of 28.5, it's important to note that Starbucks operates in a growth industry with a strong brand and global presence. To better assess Starbucks' valuation, we should compare its PE ratio to its industry peers and historical averages.
2. Price-to-Sales (PS) Ratio: Starbucks' current PS ratio is 3.53, which is higher than the industry average of 2.5. However, it's essential to consider that Starbucks generates a significant portion of its revenue from high-margin products, such as coffee and tea, which may justify a higher PS ratio.
3. Enterprise Value (EV): Starbucks' current EV is $149.80 billion, which is higher than its historical average of $125.50 billion. However, it's important to note that Starbucks' EV has been trending upward over the past five years, reflecting the company's strong performance and growth prospects.

Based on the provided data, it's challenging to determine if Starbucks is currently overvalued, undervalued, or fairly valued without access to historical averages and industry averages for PE, PS, EV, and PEG ratios. To make a more accurate assessment, it would be helpful to have access to this additional data.

In conclusion, Starbucks' 22% increase in share price this year is driven by strong sales growth, expansion, innovation, strategic acquisitions, and sustainability initiatives. However, investors should be mindful of the potential risks and challenges associated with these factors and monitor Starbucks' ability to maintain its growth momentum. While Starbucks' current valuation appears to be on the higher side, it's essential to compare it to its industry peers and historical averages to make a more informed decision. Without access to this additional data, it's challenging to determine if Starbucks is currently overvalued, undervalued, or fairly valued. As an investor, I would recommend keeping a close eye on Starbucks' performance and reassessing its valuation as more data becomes available.