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Starbucks Corporation Message Board

  • tanhai9999 tanhai9999 Dec 13, 1997 9:27 PM Flag

    Please educate me !!!

    I am a new kid on the investment block so please answer this question of mine.

    How do we know a stock is overvalued by looking at P/E, earnings, sharings ? or any other ways ? That word is mentioned quite often on this bulletin board.

    and what does "same store sales" mean ?

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    • You don't necessarily know if a stock is overvalued by looking at P/E. I've found it useful to look at a stock's relative
      P/E, in other words, how does this stock's P/E today compare with its P/E in the past. When SBUX first went public, its P/E ratio
      was very high - more than 75 times earnings. Now, the P/E is lower, and on a relative basis, looks more attractive, BUT as the
      company has gotten bigger, it is impossible to maintain the very rapid rate of growth that was the reason for the high P/E. As
      growth slows (though still continues at a very rapid pace compared with many growth stocks) the P/E is likely to continue to come
      down. For my own investing, I don't expect the highest P/E SBUX will achieve will be much above 40 in five years. On the other
      hand, I don't expect its lowest P/E will be less than 20. Estimating earnings at $2.50 per share in 4-5 years would indicate a
      price between $50 (20 x 2.50) and $100 (40 x $2.50) per share. If the P/E averages 30 and SBUX hits the earnings target, I would
      expect the stock price to roughly double over five years, or a compounded growth rate of a little better than 15%.

      Same store sales growth is the rate of growth in stores which have been open at least one year. It is designed to measure the growth rate at existing locations . . . an important measure for a company like SBUX which is opening nearly 400 new stores each year.

    • Value is only an subjective view on the price. For some, a 63' Corvette is worth 100000, for others, it might be worth 10000 or less.

      Standard and Poor index has an average PE of 21. So people use 21 as the gauge. But the value is only in the eye of the beholder. I see Starbucks having a 50+ PE a great value. Some thinks its way overpriced.

      I dont use PE as an investment selection process. I look for growth in revenue and earnings (30%+), low debt % (15% and below), management and how competitive the company is. Then if I found some stocks that fits, I ll look at the charts to see if it broke out to the upside yet, and I might look at PE and PB as the last process.

      Check out William J. O'Neil's book "How to make money in stocks," Peter Lynch's "One up on Wall Street" to learn the fundamentals of stock picking. Once you have read them, send me an email and I give you some tips and more books recommendations.

      As a beginner, do not use margin nor options. Until you start making some money, then use your profits to play around. (You are talking to someone who was burned using margin and options, not just some nobody)

      Stick with the profitable companies and dont pick the "might-bes." Lots of biotechs and companies in a competitive industry are the riskier types. As a novice, stick with big name stocks until you are familiar with the stock market AND types of companies and industries.

      Do not use Wall Street tips. Analysts are made to ruin YOU and YOUR MONEY. Do research ahead of time. Then wait and wait until it hits your desired price. I personally would look for high volume down days to buy.

      PS. Starbucks has many stores. Same store sales tracks the same store every month to see growth. So the store made 5% more than what it did the year before. Starbucks' revenue growth (30%+) comes from the NEW stores (expansion) and new products (Frappaccino in grocery stores).

      Ben Yeung

      • 1 Reply to billaben
      • Srarbucks has just been named in a lawsuit along with Owalla juices.They claim starbucks knew of the trouble Owalla was haveing with their juices.(pasturizing,or whatever)Anyway,people got E-Coli from it.Starbucks sells it or markets it.(?)Im not clear on the whole news story,but thought I would pass a long what little I heard on the TV news.Mabey somebody can add something to it.

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