uploads///Starbucks versus Peers Valuation Multiples

Starbucks’s Valuation Multiple Rose after 1Q16 Earnings

By

Jan. 29 2016, Updated 10:06 a.m. ET

Valuation multiples

Investors should look at valuation multiples when they’re deciding whether to enter or exit a stock. While there are several valuation multiples, we’ll use forward PE (price-to-earnings) for Starbucks (SBUX). A company’s forward PE multiple is measured by calculating its current price over its EPS (earnings per share) estimates for the next four quarters.

Article continues below advertisement

Starbucks’s valuation multiple

Starbucks’s valuation multiple rose to 30x following its 1Q16 earnings release from 29.89x. Earlier in this series, we saw that analysts revised their EPS estimates for the next 12 months slightly upwards. This revision may explain why the valuation multiple also inched up. Over the past five years, Starbucks has traded anywhere between 20x and 30x. But in 2015, the valuation multiple broke the 30x resistance level to reach a peak of 33.8x.

The peers in the above chart include Domino’s Pizza (DPZ), Papa John’s (PZZA), and Chipotle Mexican Grill (CMG).

You can also invest in Starbucks through the Consumer Discretionary Select Sector SPDR (XLY), which invests about 4% of its portfolio in the company.

In 2015, Starbucks acquired the remaining stake of its Japanese joint venture. This purchase led to higher earnings. The company also rolled out several initiatives that led to an increase in same-store sales growth globally, as we saw earlier in this series.

Advertisement

More From Market Realist

  • Honeywell sign
    Earnings Report
    CNBC Pro Stocks to Buy Before Q1 Earnings
  • Men walking by Morgan Stanley headquarters
    Financials
    Morgan Stanley’s (MS) Stock Forecast Before Q1 Earnings
  • Carnival cruise ship sailing
    Consumer
    Carnival's (CCL) Stock Forecast Before Q1 Business Update
  • GameStop store
    Consumer
    GME's Earnings Are Coming: Will It Be Mayday for Shorts or WallStreetBets?
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.