Starbucks (SBUX 0.20%) stock is in kind of a funk. The world's most famous coffee chain reported a 2% decline in quarterly revenue on Tuesday, and a 14% slide in profits. Starbucks stock promptly plummeted from more than $88 to less than $75 a share.
But there's good news, too. Thanks to Starbucks stock getting so much cheaper last week, investment bank Barclays says there's now much more profit potential in the stock. In fact, he thinks Starbucks shares will rise as high as $95 over the next 12 months -- up $20 from today.
Is it time to buy Starbucks stock?
Make no mistake: Starbucks' numbers were bad. Barclays called them even worse than "the worst case scenario" in a note on TheFly.com Wednesday. Beyond the Q2 earnings miss, Starbucks told investors that instead of growing earnings 15% to 20% this year (as it previously promised), it now thinks earnings will rise only in the "low single digits," or might even be "flat" against 2023.
So what does this mean to investors?
In 2023, Starbucks earned $3.58 per share. "Low single digits" growth implies that 2024 earnings might be as high as $3.72 per share. So at $75 today, the coffee stock is trading for at best 20 times current-year earnings.
For a "low single digits" grower, 20x earnings sounds kind of expensive. Also worrisome is the fact that Starbucks says it's opening 4% more stores in the U.S. this year, and 12% in China.
All those new stores, yet Starbucks' profits will grow only grow "low single digits"? That sounds inefficient and bad.
Sure, over time, Starbucks could grow faster. CEO Laxman Narasimhan says he has a "Triple Shot Reinvention with Two Pumps" strategy to turn around the business. And laugh at the name all you like, but he promises shareholders will see results sometime in Q4 of this year. And that's the other good news. If Narasimhan can deliver, we'll soon know if Starbucks is worth $95 -- or if it's a value trap.
