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Could Starbucks Be a Millionaire-Maker Stock?

By Neil Patel - Feb 10, 2021 at 6:11AM

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The ubiquitous coffeehouse chain isn't finished growing just yet.

If you'd bought $156,000 worth of Starbucks (SBUX) stock a decade ago, you'd be a millionaire today. The $125 billion global coffee chain has been a stellar investment, with the stock climbing more than 500% over the past 10 years.

Investors hoping to achieve similar returns should certainly question whether the business has much growth left, as the future is what matters to long-term shareholders. Although Starbucks hit a speed bump last year due to the coronavirus pandemic, the company is getting back on track and is almost fully recovered.

Let's find out if Starbucks could still be a millionaire-maker stock.

Masked barista handing cup of coffee to masked customer

Image source: Getty Images.

Adapting to change 

Starbucks' business took a major hit last year as it temporarily closed locations all around the world in response to the coronavirus pandemic. But the strength of the brand, coupled with consumers' unwavering need for caffeine, provided a boost as stores reopened.

While the number of customer transactions was still down year over year in the first quarter of the company's fiscal 2021, the average ticket was actually higher than pre-pandemic levels as larger group orders gained popularity. The company was also able to serve customers in multiple ways with its drive-thrus, curbside pickup option, and mobile ordering. The Starbucks Rewards program, now with 21.8 million members, grew 15% in the quarter (which ended Dec. 27), and these customers accounted for 50% of U.S. company-operated sales in the period. 

Overall revenue in the quarter was only down 5% from last year, and China looks very strong, with 22% sales growth during the period. Starbucks' ability to continue serving customers in ways most convenient for them is helping it navigate these turbulent times.

The growth story isn't over 

There are currently nearly 33,000 Starbucks locations worldwide, but management has plans to open many more. During the company's biennial investor day in December, CFO Patrick Grismer said the company "will reach approximately 55,000 stores across 100 markets by the year 2030." 

Of the 1,100 net new stores planned to open in fiscal 2021, 600 of them will be in China, which will be the major driver of growth going forward. Starbucks is testing a new store format in the country called Starbucks Now. It's a digitally enabled layout that will lean on the company's robust technological capabilities to fulfill orders. 

Learning about these expansion plans may come as a welcome surprise to investors who view the coffee chain as already being everywhere. But for a stock to make millionaires out of its owners, growth is a necessary part of the equation. 

Don't overpay 

With earnings depressed over the past 12 months due to weaker sales and increased costs related to COVID-19 safety, Starbucks looks expensive when looking at the trailing price-to-earnings ratio. But based on the mid-point of management's fiscal 2021 earnings per share (EPS) guidance of $2.80, the stock currently trades at 37 times forward earnings. This valuation is extremely attractive given the high quality of Starbucks' business. 

After being disrupted in the early stages of the pandemic, the company is almost back to achieving growth. And despite a minor setback, management has plans to stay aggressive by opening a massive number of new stores over the next 10 years. This is fantastic news for existing and potential shareholders. Starbucks has been a stock market winner for many years, and it could very well continue being a millionaire-maker in the years ahead.

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