SBUX - Starbucks Corp

[giofranchi]

Is there a thread about Starbucks? I couldn't find one.

 

I have just opened a relatively small position in SBUX for almost the same reasons I have recently opened positions in NKE and DIS: I like management very much, I like the business very much... I don't like its price very much.

Just like NKE and DIS I think SBUX has great opportunities for growth during the next 5-10 years (especially in emerging markets, but not only): its multiple is higher than both NKE's and DIS's, but it has grown faster recently and imo could go on doing so for a long time.

 

Cheers,

 

Gio

 

 

 

[Picasso]

Why do you keep buying stocks where you don't like the price?

[Jurgis]

Why do you keep buying stocks where you don't like the price?

 

Tracking positions maybe? I do that sometimes just to be sure that I revisit and possibly buy a lot when I see the stock down 50% or some number. Although price alerts may work as well...

[giofranchi]

Why do you keep buying stocks where you don't like the price?

 

Tracking positions maybe? I do that sometimes just to be sure that I revisit and possibly buy a lot when I see the stock down 50% or some number. Although price alerts may work as well...

 

Not only. If SBUX keeps growing for the next five years almost as fast as it has grown during the last five years (and I think that might very well be the case), five years from now it will probably sell for the same multiple it is selling for now. Of course in the meantime a correction in price might come and a better buying opportunity might materialize. But no one can be sure about that, right? Besides, if a correction truly happens, I have ample room to buy more.

 

Cheers,

 

Gio

[undervalued]

I hate buying something expensive. Averaging down doesn't work well if you don't buy at least twice or three times as much.

[giofranchi]

I hate buying something expensive. Averaging down doesn't work well if you don't buy at least twice or three times as much.

 

SBUX surely is selling for a high multiple. But that is different from being expensive. SBUX is expensive only if its growth decelerates meaningfully from what it has been during the last 5 years. Morningstar for instance believes SBUX is selling below IV... Evidently they think opportunities for growth in the next 5 years are still very compelling.

 

I agree with what you say about averaging down, and in fact the position I have opened would let me buy twice the number of shares I own today without making SBUX too large an investment in my portfolio.

 

Cheers,

 

Gio

[AzCactus]

Well I think they said price is what you pay and value is what you get we'll see how that plays out here. 

[Valueguy134]

I think this post is signalling a peak....anyone looking to short.

[BTShine]

If forced to do one, or the other, I'd be more inclined to go short at these prices

[bookie71]

If it is a company that you are interested in, it is a good idea to buy a few shares so you can keep an eye on it.  I believe i read that WEB does this also.

[Valueguy134]

Or just tag it in a watch list.

[Guest Schwab711]

If it is a company that you are interested in, it is a good idea to buy a few shares so you can keep an eye on it.  I believe i read that WEB does this also.

 

If this is true, then WEB is an idiot. WEB is capable of being wrong. He is merely a good source of finding information that is likely to be useful and correct. Despite his success, his opinions should't be chiseled in stone.

 

I absolutely idolize WEB (he's probably the only non-family member I feel that way about), but it doesn't change the fact that buying stock just to "track it" is stupid. I also highly doubt he ever said or even thought that, but that's beside the point.

 

A little sidebar, I also think it is [extremely] dangerous (as a habit) to seek out reasons or examples to support decisions that you know to be inefficient or wrong. Use that same energy to create or find a solution instead. I understand I probably sound childishly idealistic or "preachy", but that doesn't make me wrong. The "golden rule" is childishly idealistic, but I think we'd all agree that it is still true.

 

As an investor, it is OK to pass on an excellent company/investment because you don't fully understand it or didn't have time to research it. These mistakes are generally the consequence of habits that lead to passing on a very large percentage of bad investments/companies/management teams, especially when the consensus opinion disagrees with you. In short, if you want to be an outstanding scientist, investor, or general intellect, you can't change the fundamentals of logic and reasoning. If "logic" disagrees with your opinions or actions, you should question the latter, not the former. There will always be more opportunities in the future. There is no shortage of outstanding companies or "moats" and there never will be in the future. There will be dozens (if not more) new "moats" created in the future. To use a metaphor, if we are playing no-ante, no-blind poker, then it never makes sense to play 8-10 offsuit preflop. I don't care how bored you are, how bad your opponents are, if your SO is yelling at you to come home, or if you haven't seen a better hand in hours. You will eventually be dealt a great hand (KK or AA). Just be patient. This is basically the same things I said about "cloning".

 

It seems like nearly all investing mistakes are known at the time of the mistake and we convince ourselves that the mistake is not that big of a deal or that it is somehow no longer a mistake. I don't mean to come off as a jerk, I'm just trying to help. I am by no means an expert at investing or any of the sub-skills involved. It doesn't make the above any less true. Investing can be so easy if you just follow the "rules" without fail.

 

I know nothing about SBUX, so no opinion on the current valuation.

[Mephistopheles]

It's true that Warren Buffett owns 100 shares in almost any company that he's interested in.

 

The reason though is not to track the stock price. It's so he can get the AR/Proxy in the mail automatically every year.

[Guest Schwab711]

It's true that Warren Buffett owns 100 shares in almost any company that he's interested in.

 

The reason though is not to track the stock price. It's so he can get the AR/Proxy in the mail automatically every year.

 

Thanks for the correction! I'm wrong about him doing so then. It's still an inefficient use of capital for everyone and I still think the rest is true. Outside data collection like Oddball does, I really don't think there's any excuse to purchase tracking stakes. I could be wrong. Depending on intention, I think it builds really bad habits.

[Mephistopheles]

It's true that Warren Buffett owns 100 shares in almost any company that he's interested in.

 

The reason though is not to track the stock price. It's so he can get the AR/Proxy in the mail automatically every year.

 

Thanks for the correction! I'm wrong about him doing so then. It's still an inefficient use of capital for everyone and I still think the rest is true. Outside data collection like Oddball does, I really don't think there's any excuse to purchase tracking stakes. I could be wrong. Depending on intention, I think it builds really bad habits.

 

I almost never buy tracking positions, but I have on occasions. Psychologically, I found that I do pay more attention in those cases. So maybe in the long run that small use of capital may actually reap larger rewards due to greater attention to detail, and that makes it a good use of capital? A bit twisted I know, but I think that's how trackers feel.

[premfan]

If it is a company that you are interested in, it is a good idea to buy a few shares so you can keep an eye on it.  I believe i read that WEB does this also.

 

If this is true, then WEB is an idiot. WEB is capable of being wrong. He is merely a good source of finding information that is likely to be useful and correct. Despite his success, his opinions should't be chiseled in stone.

 

I absolutely idolize WEB (he's probably the only non-family member I feel that way about), but it doesn't change the fact that buying stock just to "track it" is stupid. I also highly doubt he ever said or even thought that, but that's beside the point.

 

A little sidebar, I also think it is [extremely] dangerous (as a habit) to seek out reasons or examples to support decisions that you know to be inefficient or wrong. Use that same energy to create or find a solution instead. I understand I probably sound childishly idealistic or "preachy", but that doesn't make me wrong. The "golden rule" is childishly idealistic, but I think we'd all agree that it is still true.

 

As an investor, it is OK to pass on an excellent company/investment because you don't fully understand it or didn't have time to research it. These mistakes are generally the consequence of habits that lead to passing on a very large percentage of bad investments/companies/management teams, especially when the consensus opinion disagrees with you. In short, if you want to be an outstanding scientist, investor, or general intellect, you can't change the fundamentals of logic and reasoning. If "logic" disagrees with your opinions or actions, you should question the latter, not the former. There will always be more opportunities in the future. There is no shortage of outstanding companies or "moats" and there never will be in the future. There will be dozens (if not more) new "moats" created in the future. To use a metaphor, if we are playing no-ante, no-blind poker, then it never makes sense to play 8-10 offsuit preflop. I don't care how bored you are, how bad your opponents are, if your SO is yelling at you to come home, or if you haven't seen a better hand in hours. You will eventually be dealt a great hand (KK or AA). Just be patient. This is basically the same things I said about "cloning".

 

It seems like nearly all investing mistakes are known at the time of the mistake and we convince ourselves that the mistake is not that big of a deal or that it is somehow no longer a mistake. I don't mean to come off as a jerk, I'm just trying to help. I am by no means an expert at investing or any of the sub-skills involved. It doesn't make the above any less true. Investing can be so easy if you just follow the "rules" without fail.

 

I know nothing about SBUX, so no opinion on the current valuation.

 

I would start by saying that in my private investments i have 70-80 percent of my assets in the category of core products.  This includes income producing real estate and a non-income producing asset.  Now the 20-30 percent i categorize as seed bets. A seed bet= A bet that might grow into a core product. As a investor its important having seed bets in the pipeline that with some luck and talent can grow into a core product. The more core products the more cash and you can cycle this.

 

A seed bet for me is a public market investment or private market partnership ( debating this one currently).  I see this thinking no different if you are a full time investor.  The 70-80 percent is your highest conviction bets and the 20-30 percent are decent conviction bets that might grow into high conviction bets. I would say tracking bets creates a open mind not a bad habit. A open mind that maybe a middle conviction bet becomes high conviction due to nonlinear events. Its all about adjusting to the market. Having seed bets (tracking bets) in the pipeline is akin to being in the minor leagues. With some luck and talent they can move up to the core product category.

 

 

[johnny]

Almost a tangent, but I figured I'd put the thought down here to remind me to do something more substantive later: Starbucks has something in common with Chipotle (I think I posted this a year or so ago in the Chipotle thread) a great deal of its success is due to the fact that it has a brand that allows it to sell profoundly unhealthy items that don't "read" as junk food to the buyer.

 

Nobody buying a Frappuccino is consciously registering the fact that they are buying a coffee-themed milkshake, and I'd be very uncomfortable about trying to predict the longevity of this effect. When you talk to older people about brands we now consider synonymous with unhealthy garbage, they will tell you quite convincingly that, at the time (1950s, 1960s), people actually thought these things were either neutral or even healthy (McDonalds, Wonder Bread, etc.). I can't shake the suspicion that there will be a similar generational realization for syrup-enhanced coffee drinks.

 

 

[DCG]

I'm not buying that argument Johnny. I don't think a single person thinks a frappuchino is healthy. Nobody buys a frappuchino as a health drink.

 

 

Starbucks primary sells coffee and espresso drinks, which people aren't going to stop consuming any time soon.

 

 

Also, it's a place to hang out, work, read, and meet friends. This is really Starbucks' core business - even more than coffee. One thing many local coffee shops do a bad job at is making people feel welcome to stay there. They can make you feel like you've overstayed your welcome if you're there for a couple hours, and want you to buy more if you're going to stay. I could sit in Starbucks for hours and they don't mind at all. Don't get me wrong, I'm all for supporting local coffee shops (and go to them often), but I don't think Starbucks is going anywhere, and don't get the comparison to Chipotle.

[augustabound]

I don't think a single person thinks a frappuchino is healthy. Nobody buys a frappuchino as a health drink.

 

I agree. But other premium drinks are made with real espresso/milk etc.

 

The premium drink wannabees at McDonalds and Tim Hortons are nothing more than chemical syrup mixed inside a machine that may or may not ever be cleaned (from what I've heard they're not cleaned regularly) by the 16 year old high school kid working there.

 

It's about the taste (quality or perceived quality) and the experience, less about healthy choices.

[johnny]

I'm not buying that argument Johnny. I don't think a single person thinks a frappuchino is healthy. Nobody buys a frappuchino as a health drink.

 

I'm not saying people consciously decide the drink is healthy. I'm saying there is a lack of red-flags that allow them to enjoy the beverage without the level of guilt that would accompany a McFlurry. Fraps and Oreo McFlurries are macronutrient/caloric equivalents; do you legitimately think that Starbucks-goers are actually aware of this? I've seen a lot of women dismiss getting ice cream of frozen yogurt for body/health reasons; I've never heard somebody do so for Starbucks.

 

It also goes beyond Fraps. Very few people that go to Starbucks buy a drink that isn't syrup-based. This is partly because their espresso is objectively quite bad, so anybody who is interested in a "pure" cappuccino will quickly defect to some third-wave coffee joint. Again, it isn't that people are walking into Starbucks congratulating themselves on the healthy drink they're about to consume. But oxycodone addicts don't think their addiction is healthy either; they just consider it to be much different from shooting heroin in the street, which has a lot more to do with aesthetics and branding than molecular reality.

 

Also, it's a place to hang out, work, read, and meet friends. This is really Starbucks' core business - even more than coffee.

 

Definitely true. I think Schultz explicitly refers to this as the "third place" strategy (the first two being work and home). This is a double-edged sword, because it essentially ties the brand to the ambience the store is able to create. No way of measuring here, but I'm willing to bet that the median income of the Starbucks loiterer is not trending in a favorable direction (again, I think there's a fashion-like aspect here, where people of lower social status are chasing the signals/behaviors of their social betters, which generally causes their social betters to move on to something else).

 

I live in Hollywood, and I would propose that anybody who cares a lot about Starbucks and the third place strategy visit the location on Sunset and La Brea if they're ever in town. It (like many other Starbucks) has become recognized by the local homeless community as a relatively safe and low-pressure area where they can nap, charge their electronics, surf the internet, etc. This is an example of something that third-wave/indie shops don't have to deal with nearly as much. Again, the only thing that matters here is which direction the trend is going. And there's no data (or easy way of generating it), just the impression I have.

 

For background, I started frequenting Peets/Starbucks/etc. a few years ago when I was thinking about shorting Peets (never pulled the trigger there, thankfully). So I have logged quite a few hours actually trying to form these opinions. They're not quite pulled out of thin air, but neither do they have the sort of quantitative rigor that I'd expect to cause anyone to switch sides. Just sharing some thoughts. I appreciate the pushback.

[boilermaker75]

 

For background, I started frequenting Peets/Starbucks/etc. a few years ago when I was thinking about shorting Peets (never pulled the trigger there, thankfully). So I have logged quite a few hours actually trying to form these opinions. They're not quite pulled out of thin air, but neither do they have the sort of quantitative rigor that I'd expect to cause anyone to switch sides. Just sharing some thoughts. I appreciate the pushback.

 

My daughter lives in West Hollywood. When I visited there was a Peets within walking distance that I would go to on Sunset near Larabee. Unfortunately that location closed  :(. Peets coffee is much better than Starbucks.

[johnny]

I wonder to what extent the management of Starbucks (and the rest) consider the threat that co-working poses to their business. When I first heard about the money WeWork was raising, I liked mocking the concept as a private starbucks club. But having now been to several LA-area co-working spaces for meetings, I'm seriously interested in joining one myself. They compare quite favorably to the vagrant carrousel I inevitably observe any time I wind up at Starbucks in the city.

 

To tie it into my earlier comments, it just seems like Starbucks is facing adverse selection issues on two different fronts. People who truly care about coffee quality are going to select out of the Starbucks population in favor of more hipsterish locations, and people who care about atmosphere/class/dignity are going to just pay $500 a month to go somewhere where the bathrooms aren't being used as showers by the less fortunate. This seems like a process that doesn't bode well for the future "feel" of Starbucks. The entire brand depends on that feel, I think.

 

Not at all saying Starbucks is a short (yet), but it isn't a company that I'm confident about the 2026 prospects for.

[TheAiGuy]

I wonder to what extent the management of Starbucks (and the rest) consider the threat that co-working poses to their business. When I first heard about the money WeWork was raising, I liked mocking the concept as a private starbucks club. But having now been to several LA-area co-working spaces for meetings, I'm seriously interested in joining one myself. They compare quite favorably to the vagrant carrousel I inevitably observe any time I wind up at Starbucks in the city.

 

To tie it into my earlier comments, it just seems like Starbucks is facing adverse selection issues on two different fronts. People who truly care about coffee quality are going to select out of the Starbucks population in favor of more hipsterish locations, and people who care about atmosphere/class/dignity are going to just pay $500 a month to go somewhere where the bathrooms aren't being used as showers by the less fortunate. This seems like a process that doesn't bode well for the future "feel" of Starbucks. The entire brand depends on that feel, I think.

 

Not at all saying Starbucks is a short (yet), but it isn't a company that I'm confident about the 2026 prospects for.

 

Hmm... I don't know that that is a threat. I just don't really think that Starbucks is a premium brand or that their consumers are particularly high end customers. I think high end coffee, I think Blue Bottle, Intelligencia, Stumptown, obscure single origin blends shipped from Japan. Starbucks isn't really a strong player in this space -- I think it's kind of like comparing Johnny Walker to single malt scotch. Both can do fine and they don't really serve the same market segments, and selling Johnny Walker is probably a much better business then selling single malt scotch. Starbucks could loose in cities like SF or NYC and still dominant market like Concords, New Hampshire or Manilla and be fine.

[sys]

i am probably blind to opportunities in their cafe business, because it's still hard for me to understand that there are so many people willing to pay so much for coffee.  however, that caveat aside, i think they probably have much more room for growth in convincing people to pay $9/lb for starbucks branded coffee in grocery stores rather than $6/lb for folgers or safeway branded coffee.

[TheAiGuy]

i am probably blind to opportunities in their cafe business, because it's still hard for me to understand that there are so many people willing to pay so much for coffee.

 

It's just not that expensive to people, in absolute terms, to spend a couple of $ a day on coffee.