Starbucks (Nasdaq: SBUX) has been one of the most amazing success stories in recent decades. It singlehandedly turned coffee from a neglected side order into a main course worthy of a trip all by itself. The premium prices it charges have been the envy of quick- service restaurants, and its rapid expansion has helped it become a multibillion-dollar business.

From an investor's perspective, about the only thing wrong with Starbucks has been its stock -- it charged a premium for this rapidly growing, profitable industry pioneer. If you care about getting legitimate value for the money you invest, there has almost never been a good time to buy Starbucks.

Until now.

What changed?
Since late 2006, Starbucks' stock has been in a tailspin. Shares have fallen from $39.43 at their peak in November 2006 to a recent price of $17.66. What happened?

  • Fear of saturation in its primary markets.
  • Emerging competition from the likes of McDonald's (NYSE: MCD).
  • Disastrous line extensions that took away from its core operations.
  • The perception that in its quest for growth, Starbucks had lost its soul.

But even as the stock was tanking, its business has continued to perform well. What was an overpriced stock of a phenomenal company is still the stock of a phenomenal company. It's simply no longer overpriced.

It's times like this -- when a strong business finds itself with a weak stock price -- that make the perfect time to buy your stake in that company. In fact, we at Motley Fool Inside Value had been eagerly awaiting the day when we could finally recommend Starbucks as cheap enough to be a value stock.

A company is not its stock
Like everyone else, we've long known that Starbucks is a tremendous company with an amazing command of its market. Unlike those who bought near its highs, though, we know that there's a difference between a company's price and its true worth. Although it has taken years for Starbucks' value to catch up with its price, the recent weakness in its shares has finally gotten it there.

As value investors, we were willing to wait because we've learned value investing pioneer Benjamin Graham's most famous lesson: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."

In essence, the Starbucks story is nothing new. The market is cluttered with once-darling stocks trading well off their all-time highs. This chart shows just a handful of companies whose stocks, like Starbucks', had simply gotten ahead of their ability to deliver results:




Date of All-
Time High

Eastman Kodak (NYSE: EK)




Clear Channel Communications (NYSE: CCU)




Cisco Systems (Nasdaq: CSCO)




General Electric (NYSE: GE)




Legg Mason (NYSE: LM)




*Prices adjusted for splits and dividends.

When the market gets enamored with a company's stock, it's easy to forget that Graham's weighing machine always wins in the end. That's true no matter what the business is or does.

The power of patience
Because Graham's weighing machine is so universal, you never have to worry about missing out on owning a great company at a reasonable price. If its stock starts to rise far beyond the value of its business, don't worry -- it'll come back.

Just remember that the perfect time to buy a stock is when its shares trade far below what the company is truly worth. Starbucks is one today, and at Inside Value we've recommended many other great companies that find themselves in the same spot because of recent volatility.

To see our top picks for new money now, click here to join Inside Value free for 30 days.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of General Electric. Legg Mason and Starbucks are Inside Value recommendations. Starbucks is also a Stock Advisor pick, and The Motley Fool owns shares of Starbucks. The Fool has a disclosure policy.