Starbucks (SBUX) has proven one of the most successful IPOs in history. Since its IPO in 1992, the stock has posted an impressive 200-fold rally, without taking its dividends into account. Nevertheless, as the company has paid a dividend only in the last nine years and has generally offered a low dividend yield, most income-oriented investors have stayed away from the stock. In this article, we will analyze why income-oriented investors should not underestimate Starbucks.
Performance Record
Starbucks has exhibited impressive consistency in its performance. It has grown its annual revenues by more than $1 B for nine consecutive years. During this period, it has grown its earnings per share almost ten-fold, from $0.26 in 2009 to expected $2.40 this year. Thanks to this exceptional performance, the stock has significantly outperformed the market over this period, as it has rallied 498% whereas S&P has advanced 165%. In other words, the stock has tripled the performance of the broad market.
Growth Prospects
While it is impossible for Starbucks to continue to grow at its historical pace, the company has ample room to keep growing at an attractive rate for several years. Starbucks is different from the other well-known multinational food & beverage stocks, such as Coca-Cola (KO) and General Mills (GIS), which have reached a saturation point in the U.S. Starbucks is still growing its revenues at a fast pace in the domestic market thanks to the opening of new stores and same-store sales growth. In the last five years, Starbucks has increased its U.S. store count at a 5% average annual rate. Moreover, Starbucks currently has operations only in 76 countries. This is in sharp contrast to most other popular multinational companies, which have already expanded in almost every country in the world.
Even more importantly, Starbucks has tremendous growth potential in China. The company opens a new store in China every 15 hours (!) and can continue to open new stores at this rate for several years, according to its legendary previous CEO, Howard Schultz. Thanks to this momentum, Starbucks is poised to have approximately 6,000 stores in China by the end of 2022. The growth potential in China is immense, as this market will eventually exceed the size of the U.S. market thanks to the boom of its middle class, whose population will exceed 600 million by 2022.
