The Reddit-fueled, meme-stock craze has characterized the stock market in 2021. Retail traders are piling into shares of companies they believe will rise quickly in order to make a quick buck. While exciting and stimulating, this can't go on forever.
A more sustainable investment approach, and one that can build massive amounts of wealth over the long term, is to own high-quality businesses with competitive advantages. I believe Starbucks (SBUX 1.00%) is one such company that'll be successful for many years to come.
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A compounding machine
It's probably an understatement to say that Starbucks completely upgraded the entire coffee-drinking experience. Consumers have no issue now with paying a premium for what they view as an elevated product, and this is why the business has thrived and will continue to do so.
Over the past decade, Starbucks has grown its store count from just over 17,000 to a whopping 33,295 today. During that same time, revenue and profit increased at a compound annual growth rate of 10% and 15%, respectively. These impressive numbers demonstrate just how long the company has been in expansion mode.
Strong brand recognition
Starbucks delivers on consumers' love of caffeine, which is a global phenomenon. Therefore, it's easily recognized around the world, something that has significantly contributed to the company's prosperity. A big reason for Starbucks' success can be tied to one major factor: its powerful brand.
Menu innovation is key to strengthening the brand in consumers' eyes. In the U.S. and Canada, the anticipation of new fall menu items is a huge deal every year. In the past, it's been such specialty offerings as Pumpkin Spice Latte or Salted Caramel Mocha. The latest is Apple Crisp Macchiato, which Starbucks launched on Aug. 24th.
Consistent product introductions bolster the brand because they encourage frequent customer visits and drive excitement. I have no doubt that Starbucks will continue excelling at this strategy and it will propel the company for a long time.
Adding to the brand image is a seamless digital ordering experience. Starbucks' mobile app, with 24.2 million active rewards members as of the last quarter-end, allows coffee enthusiasts to order ahead and pay to collect points. Starbucks' ability to offer drive-through, pick-up, and delivery options during the pandemic further entrenched its competitive position.
Expect more store openings
Besides being top-of-mind for customers, another main ingredient for a forever stock is having a large runway for expansion.
Not only does Starbucks have a history of success, but according to management, the growth story is far from over. During an investor presentation last year, then-CFO Patrick Grismer boldly predicted that the coffeehouse chain would reach 55,000 locations by 2030.
In fiscal 2021, Starbucks plans to open 1,100 net new stores globally, and 600 of them will be in China. The business surpassed 5,000 stores in the fast-growing Asian nation in the most recent quarter, making it the second-largest market for Starbucks (other than the U.S.).
It's extremely tempting to want to hop on the meme-stock bandwagon. The fear of missing out is a real issue that a lot of individual investors have to deal with, particularly today when technology has made it so easy to check up on the latest financial news or stock information.
If your goal is to build wealth in a prudent, steady, and disciplined way over the long term, owning a company like Starbucks is a smart idea. The business will certainly be flourishing far longer than meme stocks will.
