uploads///

How Starbucks’s Valuation Multiple Compares with Its Peers

By

Jan. 31 2018, Updated 10:33 a.m. ET

Valuation multiples

Valuation multiples help investors compare companies with similar business models. For our analysis, we’ll use the forward PE (price-to-earnings) multiple. The forward PE multiple is calculated by dividing the company’s current stock price by analysts’ earnings estimates.

Article continues below advertisement

SBUX’s forward PE multiple

The lower-than-expected fiscal 1Q18 SSSG (same-store sales growth) and revenues have led Starbucks’s stock price and its valuation multiple to fall. On January 26, 2018, SBUX was trading at a forward PE multiple of 22.6x compared to 24.2x before the announcement of its fiscal 1Q18 earnings.

From the chart above, we can see that Starbucks was trading above its peers’ median at the beginning of 2017. Due to a tough fiscal 2017 and weak performance in fiscal 1Q18, the company’s valuation multiple fell below its peers’ median value.

On the same day, its peers Dunkin’ Brands (DNKN), McDonald’s (MCD), and Domino’s Pizza (DPZ) were trading at forward PE multiples of 24.3x, 27.4x, and 24.4x, respectively.

Growth prospects

To drive its SSSG, Starbucks (SBUX) is focusing on enhancing the customer experience, accelerating the momentum of Digital Flywheel, expanding its Mobile Order & Pay facility, and opening Starbucks roasteries and Starbucks Reserve.

These initiatives are expected to increase the company’s expenditures. If these efforts don’t generate the expected sales, the increased spending is expected to put pressure on the company’s margins, lowering its EPS.

For the next four quarters, analysts expect Starbucks to post EPS growth of 18.3%, which could have been factored into the company’s current stock price. If the company doesn’t post earnings in line with analysts’ estimates, the selling pressure can bring the valuation multiple down.

Next, we’ll look at analysts’ recommendations for Starbucks.

Advertisement

More From Market Realist

  • what credit cards can you get without a credit check
    Consumer
    New Program Aims to GEt Credit Cards to People Without Credit Scores
  • Man going into a tax preparation office
    Consumer
    Should I File a Tax Extension Before the Tax Deadline?
  • Thai Airways plane
    Consumer
    Thai Airways (TAWNF) Is Risky, Best to Avoid the Penny Stock
  • A "now hiring" sign outside a Popeyes restaurant, one sign that employers are having trouble finding employees willing to work for current wages.
    Consumer
    Why Employers Are Struggling To Fill Jobs Despite High Unemployment
  • 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.