Many investors worry that they might have missed the biggest gains in Starbucks (SBUX 0.47%) stock. That's not due to any recent price spike, of course. The coffee titan's shares sat out of the 2023 stock market rally and are down over the past full year. But the business is clearly past its big expansion phases now that Starbucks operates nearly 40,000 locations around the world.
Don't assume this stock is done producing strong shareholder returns, though. Let's look at a few reasons why it's not too late to make Starbucks a key part of your growth-focused portfolio.
Still growing
Owning Starbucks doesn't mean you have to settle for sluggish revenue growth. Comparable-store sales were up 5% in the most recent quarter, matching the gains that investors recently saw in Dutch Bros, which is much earlier on in its growth story.
It's also great news that Starbucks is achieving its sales gains through a balance of rising customer traffic and increased average spending. It stands out from McDonald's in this area, which has been posting declining traffic into early 2024.
Starbucks is finding room to expand its store footprint at the same time. It added 550 restaurants to its base last quarter. Management is targeting international markets like China but also pushing into more rural areas in the core U.S. geography. These wins helped overall revenue rise 8% last quarter to $9.4 billion.
Trouble spots
There are challenges facing the business, though. Starbucks' growth has slowed in recent months, for example, just as it has for most of its restaurant and fast-food peers. That's because shoppers are spending more cautiously after prices spiked in 2023. It will be harder to grow sales in that environment, especially now that price increases are slowing.
Most Wall Street pros are looking for sales to rise by about 8% this year, which isn't particularly exciting, compared to what you might find in the tech industry. Management said in late January that "headwinds" are pressuring demand into early 2024 but the outlook is still bright around profits and cash flow.
Cash and earnings
Speaking of profits, Starbucks' earnings prospects haven't looked this strong in a while. Operating profit margin is approaching its high of 16% of sales, even though revenue growth is slowing. That boost suggests that the chain can hit a record once the next cyclical upturn starts.
"I am proud of the significant margin expansion and double-digit earnings growth we delivered...as it underscores our multiple paths to earnings growth," CFO Rachel Ruggeri told investors back in January.
Those paths include innovative drink releases, the Starbucks loyalty program, and a bigger push into the drive-thru and delivery niches. Combined with steady improvements to the in-store experience, these initiatives should keep the chain near the top of the industry when it comes to comps growth over the next several years, even as the store base lifts global revenue. Toss in even modest profitability increases, and you've got all the ingredients you need for market-thumping returns.
It's true that Starbucks is a mature business that's unlikely to grow at the over 20% rate that investors are seeing with, say, Dutch Bros. But it still has highly productive projects to which it can direct its ample cash flow. That's why investors should still consider it a buy today.
