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Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market. Starbucks stock falls as sales growth fails to meet expectations Oct. ET by Claudia Assis. No Headlines Available. Other News Press Releases. ET on Motley Fool. PineBridge Investments, L. ET on GuruFocus. How Could This Help Investors? ET on InvestorPlace. ET on Zacks.
ET on WallSt. Better Buy: Disney vs. Starbucks Nov. Brands Inc. Chrome Safari Firefox Edge. Coca-Cola Co. PepsiCo Inc. McDonald's Corp. Chipotle Mexican Grill Inc. Monster Beverage Corp. Yum China Holdings Inc. Restaurant Brands International Inc. Competitors abound from all sides of the consumer cyclical restaurant and beverage industry.
Starbucks competes with several other low-cost providers including Dunking Donuts, McDonalds and convenience store brands, not to mention the hot and cold beverage competition from companies like Coca-Cola and Pepsi, which are always looking for the newest emerging brand names.
Thus, market trending products or acquisitions such as the Coca-Cola Costa deal could affect revenue negatively for Starbucks. Partnerships are also a variable for competition. Keeping these partnerships and keeping the competition from aligning in these channels is also important. Operationally keeping its brand alive through partnerships with suppliers like Walmart, Target, and other retailers, including online retailers, is also critical.
Starbucks openly admits it is vulnerable to commodity prices. The company spends an extraordinary amount of money on coffee beans, sugar, milk, and other commodities. It is not nakedly exposed to commodity fluctuations.
Starbucks uses derivative contracts as a hedge just in case prices skyrocket. And there is evidence to suggest these measures are effective for their bottom line. The American stock market has enjoyed a charmed climb since the lows of , with the economy and stock market steadily gaining annually.
Stocks in nearly every sector have been able to take advantage of this and most investment advisors are bullish on the future.
However, with rising-rate plans from the Federal Reserve, years of compounding gains and risks of trading volatility popping up more often, the bear market risks in are increasing. The beta of 0. Starbucks has deployed some significant amounts of capital to expand into international markets , partially because many prime locations in the United States already have Starbucks locations and the market is becoming saturated.
Comedian Lewis Black once joked he ran across two Starbucks cafes located directly across the street from each other in Texas, and now there are three separate Starbucks cafes at the intersection of Shepherd and West Gray in Houston. Domestic saturation is not always the best driver for international expansion though and there is no guarantee that the international markets will have acceptance rates that mirror the U.
Investors should pay particular attention to the performance of foreign-placed Starbucks cafes, particularly CAP. CAP has had some success, but competitor brands are also moving into the same emerging markets, including large franchises from Yum! Brands and McDonald's with the McCafe.
Some investors believe Starbucks could be peaking after prolonged market success. A potential impending bear market combined with economic and spending retractions could be a problem for Starbucks and its investors as luxury brands would take a hit in this scenario. New global expansion is also a risk as international markets have different preferences and adoption levels. Expansion from developed markets to emerging markets can also have higher risks as spending psychologies can differ dramatically.
As with all equities and consumer cyclicals especially it is important to monitor the systematic changes along with the idiosyncratic changes to stay ahead of any and all potential losses that can possibly be avoided or hedged with active investing. Business Leaders.
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