Investing should be about identifying the best companies, buying their stocks, and holding them for the very long term. The key component in that equation is to identify the best companies. It's difficult to choose only one as there are so many publicly traded companies with great businesses.
That said, based on its long track record of success, global brand power, and streak of ever-improving quarterly results, Starbucks (SBUX 0.47%) is at the top of my list of growth stocks to buy. Let's dig into the recently reported fourth-quarter 2023 results to see why I've singled Starbucks out as my top stock right now.
Revenue growth is back on track
Prior to the pandemic, Starbucks had pretty steady year-over-year revenue growth. Quarter after quarter, investors could come to expect high-single-digit or low-double-digit revenue growth pretty consistently. That all changed during the pandemic as Starbucks locations all over the world closed for varying lengths of time. These closings and eventual reopenings made revenue growth choppy for a few years.
Over the last few quarters, there's been a steady increase in revenue growth that culminated in Q4 of 2024, with growth of 11%. Encouragingly, this growth came from both the North American and international segments. Of these two, growth from international is more important moving forward as this segment includes China, Starbucks' second-largest market.
China is the key to the future
An investment in Starbucks is partially an investment in the company's growth in China. At the end of Q4 2023, Starbucks had 6,806 stores in China, up 13% from the end of 2022. This store count is second only to the U.S., where there are more than 16,000 locations. The Q4 results in China show continued improvement in this vital market.
| Metric |
Q4 2022 |
Q4 2023 |
|---|---|---|
|
Revenues |
$776 million |
$841 million |
|
Change in comparable store sales |
(16%) |
5% |
|
Change in transactions |
(17%) |
8% |
|
Change in average ticket |
1% |
(3%) |
Data source: Starbucks.
These results are pretty close to the overall international segment results. However, the improvement over Q4 of 2022 is more impressive in China due to the lingering impacts of pandemic-related store closures. The bottom line is that success for Starbucks is closely linked to success in China, so investors should take notice.
The reinvention plan is on track
When Starbucks management unveiled its reinvention plan in September 2022, it set specific goals for annual growth in three key areas. Only one year into this three-year plan, Starbucks has achieved all three goals.
| Metric |
Reinvention Plan Goal |
FY 2023 Result |
|---|---|---|
|
Same-store sales growth |
7% to 9% |
8% |
|
Revenue growth |
10% to 12% |
12% |
|
Non-GAAP EPS |
15% to 20% |
20% |
Data Source: Starbucks. FY = fiscal year. GAAP = generally accepted accounting principles. EPS = earnings per share.
Management is guiding for slightly slower same-store sales growth in fiscal 2024, but the revenue and non-GAAP (non-generally accepted accounting principles) earnings-per-share (EPS) targets listed above remain for 2024. Investors should keep an eye on these metrics as indicators that Starbucks is on track.
Why is Starbucks a buy now?
Despite consistently improving operating results, Starbucks stock is still trading down 21% from its 2021 high. The stock currently trades for 3 times trailing sales and 31 times trailing earnings. I wouldn't call the stock cheap, but both of these multiples are lower than their long-term historical averages.
I see enough positive signs coming out of China to believe that the growth story in that market is on track and could drive results for years to come. There will likely be price dips to add on in the future, but buying some shares now seems reasonable to me.
