Starbucks (SBUX -0.55%) has been one of the all-time great investments with shares of the world's largest coffee chain returning over 17,000% since its debut 30 years ago in 1992 .
But the year of its 30th anniversary of going public hasn't been kind to the Seattle-based company thus far with shares down 33% year to date and nearly 40% off their 52-week highs. The shares have slumped because of inflation (both wage- and commodity-related), staffing issues, and tensions with employees who are seeking to unionize. The strict lockdowns in China, which brought business there to a screeching halt, did not help matters either since this is a market where Starbucks has a large presence.
So is this dip a sign that Starbucks is past its peak or a chance to buy an all-time great growth stock at a discount before it gets back to its winning ways? Here are the top three reasons I am bullish on Starbucks.
Image source: Getty Images.
China: From challenge to growth driver
Starbucks has a massive and longstanding footprint in China, having first entered the country in 1999 and since growing to over 5,400 stores across more than 200 cities. While China has been a large part of Starbucks' growth, during the last quarter, same-store sales in China plunged 23% as China's zero-tolerance policy toward COVID-19 cases caused some stores to close and others to reduce their hours of operation. China recently ended the lockdowns in Shanghai and other major cities. As conditions loosen and consumers get back to their normal schedules, same-store sales should rebound. Starbucks has invested heavily in China and has put itself in a good position to benefit from the growth of its consumers over the long term.
For example, Starbucks has embraced working with some of China's dominant "super apps" like Alibaba Group Holding and Meituan. Starbucks has partnered with Alibaba to enable Alibaba customers to preorder Starbucks orders on various Alibaba platforms such as Alipay and Koubeiand pick them up in store. Alibaba users can also order Starbucks for delivery.
In January, Starbucks launched a partnership with Meituan, China's largest food delivery platform, with over 660 million users, to expand its delivery services in China. Customers ordering through Meituan's app now receive the same incentives Starbucks offers through its own app in China. Meituan users can also use the app to book events at their local Starbucks or to sign up to participate in activities like coffee tastings. These strategic partnerships are helping to expand Starbucks' reach and to grow its exposure beyond its core customer base. Furthermore, Starbucks has experienced great success with its membership program and digital ordering in the United States, and these strengths should translate well in China, where customers are accustomed to mobile payments and digital orders.
The biggest insider of all is buying
Investors like to see insider buying as it shows that a company's management believes in the company and that its shares are undervalued, and because it means that the management team has skin in the game alongside investors. There is also the sense that insiders know the company better than anyone, so if they are bullish on the company's future outlook, it is a good sign for shareholders.
Starbucks CEO Howard Schultz is about as big of an insider you can be and knows the company better than perhaps anyone on the planet, as he took the company public and is serving his third stint as CEO (although this time with the "interim" tag). Schultz has been buying shares hand over fist since coming back on board as interim CEO, buying $10 million worth of shares at around $73 on May 10. Then, as if that wasn't enough, Schultz added more shares just two days later, buying another 72,500 shares at $68.85 per share. Schultz now owns nearly 22 million shares of Starbucks, which is admittedly less than he owned in his heyday, but his large stake and repeated recent buys near the 52-week low indicate the Starbucks founder is bullish on the company's prospects.
Serving up dividends
Starbucks also offers shareholders a solid dividend, with the stock currently yielding 2.5%. While this isn't as high as some income-oriented stocks in sectors like telecommunications or utilities, it is a very solid dividend for a company with Starbucks' growth profile. Starbucks is also returning capital to shareholders via share repurchases, buying back $461 million of shares last quarter and $3.4 billion in the quarter that ended on Dec. 31, 2021.
Starbucks has had an inauspicious start to its 30th anniversary as a public company, but there is reason to be bullish on the future. The company has put itself in a position to succeed in China. As the world's most populous nation opens back up, it will turn from being a challenge dragging down the company's results into one that is driving growth again. The three-time CEO has been on a share-buying spree in May, and the company is returning capital to shareholders.
Based on all these factors, Starbucks should be able to soon turn the corner and return to its more familiar role as a long-term winner again.
