On April 3, we took a look at Starbucks (SBUX 0.65%) and its underperformance of the S&P 500 year-to-date. We concluded that it was a major investment opportunity and the stock has been one of the top performers in the market since. We were right the first time. However, we are left with this big question: has the stock run too high or is this just the beginning of a run much higher?

Latest results
On July 25, Starbucks reported third quarter results for fiscal 2013 and it was a record-setter for the company. Take a look at this overview:

  • Earnings per share of $0.55 vs. expectations of $0.53
  • Revenue of $3.74 billion vs. expectations of $3.3 billion
  • Global same store sales growth of 8%
Earnings per share rose 28% and revenues grew 13% year over year. The company's operating margin expanded 150 basis points to 16.4%. On top of these beats, management announced raised guidance for fiscal 2014. This all resulted in a 7.61% pop for the stock. I do not think there was anything more the company could have done to make it a better quarter.
 

Upcoming expectations
Starbucks is set to report fourth quarter and full-year earnings for fiscal 2013 on October 30. Analysts currently expect growth on both the top and bottom lines. The consensus estimates look like this:

Statistic Expected 2012 Growth
Earnings Per Share  $0.60  $0.46  30.4%
Revenue  $3.8 billion  $3.36 billion  13.1%

At the rate Starbucks has been growing in 2013, I believe another earnings beat is in store. Even if it meets the current expectations, it would make for another record-setting quarter. Keep a close eye on same store sales growth and management's first quarter guidance. Those may be the two most important statistics that determine whether the stock pops or drops.

The international competition
Dunkin' Brands Group (DNKN), the owner and operator of Dunkin' Donuts and Baskin-Robbins, is one of the largest players in the quick-serve restaurant and coffee industry. I took a close look at this competitor on April 3 and concluded that both companies had the potential to well outperform the market for the rest of 2013. Here's what the stocks have done since that date and year-to-date:

Company Starbucks Dunkin' Brands S&P 500
Performance since 4/3/13  37.45%  28.41%  12.34%
Performance YTD  44.20%  42.38%  19.40%
Dividends Paid YTD  $0.63/share  $0.57/share N/A

As you can see, both Starbucks and Dunkin' have absolutely obliterated the overall market since April and year-to-date. Both pay healthy dividends, have favorable forward earnings estimates, and have momentum on their sides. Just like I said in April, Starbucks and Dunkin' can both be considered "best of breed" and are great long-term investment opportunities, even after these large runs.

The Foolish bottom line
Starbucks has had a great run year-to-date, but it is still a value play based on forward estimates. Personally, I would prefer waiting for the stock to pull back 5-10% before getting in, but this fall may never happen. Keep Starbucks on your radar and watch closely when it reports earnings; any weakness after the report is nothing more than a buying opportunity.