If nearly half of U.S. companies trade at less than 14x price-to-earnings (or “P/E”), consider the following: Starbucks Corporation (NASDAQ:SBUX) is a stock to avoid entirely with a 34.7x P/E ratio. However, the P/E may be very high for some reason, and more research is needed to determine if that is justified.
Starbucks’ recent performance has been disappointing. That’s because its revenue declines are inferior to other companies that average some growth. Many may expect earnings performance to rebound significantly, which is preventing the P/E from collapsing. Otherwise, you’ll end up paying a hefty price for no particular reason.
See the latest Starbucks analysis
Want the full picture of the company’s analyst forecasts? freedom A report on Starbucks helps illuminate what’s on the horizon.
What is the growth trend of Starbucks?
It’s only when the company’s growth is on track and clearly outperforms the market that it’s really reassuring to see a P/E spike like Starbucks.
Looking back at last year’s earnings, unfortunately, the company’s profits have plummeted to 20%. As a result, even three years ago, his overall earnings are down 3.0%. Therefore, recent revenue growth is not desirable for the company.
Looking ahead, analysts covering the company estimate that revenue should increase by 19% annually over the next three years. The rest of the market, on the other hand, is projected to grow at only 9.2% per annum, which is unattractive.
With this information, you can see why Starbucks is trading at such a high P/E compared to the market. Most investors are hopeful of this strong future growth and seem willing to pay more for the stock.
Conclusion of Starbucks P/E
It can be argued that the power of the price/earnings ratio is primarily for measuring current investor sentiment and future expectations, rather than as a valuation tool.
As expected, Starbucks confirmed that it maintains a high P/E ratio as it forecasts higher growth than the market as a whole. Shareholders are now satisfied with the P/E ratio because they are confident that future earnings are not threatened. Under these circumstances, it is hard to imagine that stock prices will fall significantly in the near future.
Before proceeding to the next step, you should know: Starbucks 5 Warning Signs (2 is a little worrying!) Here’s what we found out.
You may be able to find a better investment than Starbucks.If you want to narrow down the candidates, check here freedom An interesting list of companies trading at less than 20x P/E (although they have proven they can grow their earnings).
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or qualitative materials. Is not …
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