In Reply To:
Good Time to Get Into Starbucks?

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By Goofyhoofy
November 17, 2003

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I figured out why there was a big drop in the stock price back in '99: on June 30, the company announced launching their Internet site with sales, etc. The quarterly earnings came in 6 cents below the prediction, and the stock opened for $10 less the next day.

Yes. The company did worse than expected and Howard announced a bunch of initiatives, which had little-to-nothing to do with "Starbucks." A lot of people thought he had lost his mind, or perhaps was bored, or perhaps he saw the end of the Starbucks road and was desperate to find some new avenue for growth. Too many questions, a lot of people bolted.

I couldn't find the reason for the sizeable share price drop in May/June of 2000, just a lot of posts about it being a good time to buy.

I don't recall the specifics either (and I'm involved in another project, so I don't have the time to do the research) but Starbucks has always been a stock "priced for perfection." At some point, the lofty-P/E ratios of even the best "growth stocks" have to come back to earth, because the stock price innately reflects the value of the company - and if "growth" has stalled, then the company is not worth what some people thought it was going to be worth another 5 years out.

Starbucks has one of those high P/E's. And it should (I think), it still has a lot of growth ahead of it. But as we look at the same-store-comps this year and marvel (wow! 10% growth per store this month, or whatever), there was a period where the SSS were only growing 4-5-6%, and that was "down" from the previous year. Some investors thought, "Aha, the only way they can grow is to open new stores, that's capital intensive, that's less profitable, time to bail."

It didn't turn out to be so, of course.

But someday it will.

I waited three years to find my buying opportunity. I got it for 3/5 the price of the guy who bought it the day before. I assure you, getting it for 17 instead of 29 (or whatever the numbers were, I forget) makes a difference in your returns over time, a big difference.

I'm not suggesting you should wait three years. Or even three days. Only that you should be aware that it is a volatile stock, and you may be presented a buying opportunity at a better price somewhere down the road.

It's also possible you may not. That's why I was waiting on Starbucks: it was "too expensive" and I thought I would never buy it. As it turns out, I did. If I hadn't, well, there's no law that says Starbucks must be in my portfolio, any more than I needed to buy Yahoo at $300 (I got it at $16) or Cisco at $80.

You aren't penalized for pitches you don't swing at. You are penalized for BAD pitches which you do. It's your call, of course, and we're all guessing at which pitches are the fat ones, but it really hurts when you go after one that looked good in the pitcher's hand, but turned out to be in the dirt by the time it reached the plate.

If it were me, I'd find a half dozen to dozen "candidates"; companies you know something about, are interested in, maybe even patronize. Then watch them. Then buy what's "on sale", rather than what's trendy that week.

I'm the first one to say you will miss a couple of things that way. People who waited for AOL to have "a better price" only had one or two chances - before it eventually crashed. I'm still waiting for "a better price" for Krispy Kreme and a few others. Maybe they'll never come. That's OK, I got Starbucks and a bunch of others "on sale", and if I never have KK or Tractor Supply or Panera Bread, I'll be just fine.

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