As S&P 500 near record territory, there is a lot of optimism among the investment community. The problem, however, is that some investors may have difficulty finding attractive buying opportunities in this type of market.
However, not all companies are winning for their shareholders. In fact, one company in particular, which has a long history of success, has gone through a rough patch.
As of this writing, this restaurant’s shares growth stock in particular, they are down 42% from their July 2021 peak price. Don’t be discouraged as you should consider adding it to your portfolio.
Pessimistic in the short term
It wasn’t a happy week for Starbucks (NASDAQ: SBUX). The ubiquitous coffee chain recently reported its fiscal 2024 second quarter financials and it really disappointed investors.
In the 13-week period ending March 31, Starbucks reported a surprising drop in revenue of 2%, which fell short of Wall Street expectations. This was driven by same-store sales which fell 3% in the US and 11% in China. These are the company’s two most important markets, so weakness here is a worrying sign. Starbucks saw a drop in transactions in both countries.
It was even worse when it came to profitability. Due to the company’s operating expenses remaining flat compared to the same period a year ago, along with declining revenues, Starbucks reported a 17.2% decline in operating profit
“The headwinds discussed last quarter continued in several key markets, we continued to feel the impact of a more cautious consumer, especially with our more occasional customers, and a deteriorating economic outlook weighed on customer traffic,” said CEO Laxman Narasimhan in the earnings call.
Executives also haven’t given shareholders much to be excited about. They see that difficulties continue, resulting in reduced revenues and profit forecasts for the entire fiscal year.
Optimistic about the long term
While it’s certainly important to pay attention to new quarterly numbers to understand how a company is performing, I always recommend investors focus their attention on the next few years rather than the next few weeks or months. A long-term mindset helps investors focus on what really matters.
There are reasons to remain optimistic about Starbucks. Your powerful brand is one of them. There aren’t many companies that resonate with consumers as much as this one, a position built over many decades thanks to consistent delivery to customers. The brand is Starbucks’ main competitive advantage and has helped drive pricing power.
Reinforcing this brand is Starbucks’ intense focus on investing in its digital capabilities. Despite a poor performance in the last quarter, the company still managed to increase its number of loyalty members by 6% in the US. The Starbucks mobile app increases accessibility and convenience for customers while providing the company with a valuable marketing channel.
There is still a lot of potential for growth, according to the leadership team. By 2030, the goal is for Starbucks to have 55,000 stores open worldwide, up from the current count of 38,951. Management believes the biggest opportunities are in the US and China.
And thanks to the stock’s recent weakness, the valuation is cheap. The stock trades at a price-to-earnings ratio of 20. That’s the lowest multiple it has sold for in the past two years.
Investing is best when it is viewed as a long-term game. Chances are high that Starbucks will eventually regain a stronger foothold, especially in its two biggest markets, making this a beaten-down stock you should consider buying today.
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Neil Patel and its clients do not have a position in any of the stocks mentioned. The Motley Fool has positions on and recommends Starbucks. The motley fool has a disclosure policy.
1 Growth Stock Dropped 42% to Buy Right Now was originally published by The Motley Fool
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