Politics and corporate boardrooms don’t often make for good bedfellows.
Look at Starbucks (SBUX) CEO Howard Schultz, who is encouraging the company’s baristas to scribble “Race Together” on customers’ cups.
His goal is to spark conversations about race relations between patrons and staff.
Now, while the idea may be a noble concept, are consumers prepared to have real conversations on race relations while standing in line waiting for a latte?
The move risks alienating both customers and Starbucks’ employees by forcing uncomfortable interactions between them – people, who are, at best, acquaintances.
So what does this mean for Starbucks’ stock?
Schultz’s efforts are little more than executive window dressing on an otherwise well-run organization that’s seeing its share price rise for legitimate reasons. In other words, the CEO’s political efforts will do little to slow the company’s long-term growth.
But here are two moves that do promise to impact the stock…
Two Meaningful Announcements…
Shares of Starbucks rose 2% on Thursday after the company announced plans to conduct a 2-for-1 stock split on April 9, as well as plans for coffee delivery services in Seattle and New York City.
SBUX shares closed the trading day at $97.78.
The stock split is the sixth for the company since its IPO in June 1992, and is indicative of the company’s stellar growth – especially in the last five years.
The chart below illustrates the phenomenal five-year performance of SBUX, which has gained nearly 300% against the nearly 80% return of the broader S&P 500 Index.
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This growth has made Starbucks into a global powerhouse. The company boasts a market cap in excess of $73 billion with roughly 21,000 stores in more than 65 countries worldwide.
And unbelievably, the company is still pushing the envelope on growth.
Plans for Continued Rapid Expansion…
Despite the company’s size, SBUX is expecting earnings-per-share (EPS) growth of more than 15% per year for the foreseeable future. That’s in addition to its plans to expand its store count by roughly 7% each year over the next several years.
Now, roughly two-thirds of the company’s expansion will occur outside of the United States, where the risk of oversaturation is minimal.
That doesn’t mean domestic growth is on the back burner, though.
Domestic growth will continue via SBUX’s just-announced delivery services in Seattle and New York. Local baristas will deliver Starbucks products to nearby office buildings.
While the deliveries will be limited to large orders, the plan allows the company to provide a real-world test for one of the company’s most-requested services.
And a successful rollout should lead the way to smartphone ordering and payment for customers who never set foot in a store.
In addition, the company’s 2012 acquisition of Teavana will spur additional growth as tea sales now account for about 10% of all Starbucks sales.
SBUX Isn’t Cheap
Now, investors interested in SBUX shares must be prepared to pay a high price for the company’s EPS growth.
You see, the company currently trades at a price-to-earnings multiple of 26.49 and an EV/EBITDA ratio of 19.41. And while those metrics are steep, they don’t seem overly excessive for a company growing at 15% or more per year.
Best of all, the stock comes with fatuous attempts at political activism thrown in for free, which makes a great investment even better.