Starbucks Is A Great Opportunity

Starbucks Stock Price

Summary

Shares of Starbucks have pulled back considerably from 52-week high levels.
The company is tapping into several high growth markets.
The steps that the company has taken recently will benefit it in the long-run.
The stock is a great buy at current levels for long-term investors.
I Know First algorithm is currently bullish on SBUX.

Buying great companies on pullbacks is one of the keys of successful investing. In the recent past, I have recommended buying stocks like Nike (NKE) and Wal-Mart (WMT) on the pullbacks. In this article, I will be focusing on Starbucks (SBUX). Starbucks is a great company and the stock has pulled back over 10% from its 52-week highs. In my opinion, investors should make the most of this opportunity by increasing their position in the stock.

Recently, the company initiated a couple of moves that in my opinion remain stable growth drivers. The market is pleased with Starbuck’s initiatives as the stock has risen about 5% in the last few trading sessions. However, I think Starbucks still has a lot of room to run, thereby making this a great buying opportunity for long-term investors.

Is it the right time for investment in Starbucks?

Starbucks recently announced a number of initiatives that include expanding the existing Tata Sons and Starbuck partnership, a collaboration with Mora Iced Creamery, and availability of its Beach Bellini herbal tea at Teavana specialty retail stores across the United States and Canada. While the outcome of these moves depends on the successful integration of its business with that of the mentioned companies above, but at this point, these steps look solid on the path of achieving a big success due to an improving tea and coffee market in the United States.

For instance, the expansion of a partnership with Tata Sons will allow Starbucks to offer a single-origin, Tata Nullore Estates coffee from India. This is the finest coffee from India to a new audience that should enable the company to add colors to its existing product line in the United States. At the same time, the company will extend its Teavana specialty tea brand to India with a unique bold and customized flavor combination. Starbucks already sells its coffee products over 80 stores across six cities.

In my opinion, the introduction of Teavana specialty tea brand is a good move, as Indian tea market remains attractive in the long-run. According to The Hindu, Business Line, the Indian tea market continues to be strong with consumption to grow 3% in the long-run. Even more importantly, Starbucks has got the right partner to establish its brand in India, as Tata Tea is looking at a 30% growth in market share in 2016 from the current market share of 25% last year. This strong presence in the Tata tea in the Indian market will enable Starbucks’ Teavana specialty tea brand successfully in India.

On the other hand, its effort of adding Tata Nullore Estates coffee to its product line will enable the company to serve the customers outside the country to experience this beautiful Coorg coffee growing area of India. According to the International Coffee Organization, coffee consumption across the world rose by 1.4% in 2015. Meanwhile, the Specialty Coffee Association of America (SCAA) reported that one of very two cups of coffee consumed in the United States is considered specialty, while NCA reported that specialty coffee consumption increased threefold between 2000 and 2015. Moreover, around 34% of adult coffee drinkers reported drinking specialty coffee daily, up from 24% in 2010.

In Addition, Starbucks should benefit from the growing demand for a cold brew. According to Mintel, “Retail sales of cold brew reflect its expanding role in the coffee category with estimated 115 percent growth from the year prior, reaching $7.9 million in sales. Growth has been steady since 2010, increasing 339 percent through estimated 2015.”

Apart from this strong growth of cold coffee, the company also can benefit from the non-resident that can be an attractive market for its newly introduced Tata Nullore Estates coffee. According to USA TODAY has reported that the share of foreign-born population living in the United States has increased speedily at a growth rate of 13.7% in 2015 and is expected to grow at the rate of growth of 14.9% till 2025 and at CAGR of 17.7% by 2065.

This is a positive sign for Starbucks as it can be a massive addressable market for its newly added Tata Nullore Estates coffee. The good part is that the percentage of Indian migrants is rising in the United States. According to migrationpolicy.org, there were approximately 2 million Indian-born immigrants residing in the United States, accounting for 4.7% of the 41.3 million foreign-born population in 2013. Moreover, there are approximately 19.4 million Asian Americans that make a good number for Starbucks to establish this brand going forward. The chart below illustrates share of the foreign-born population in the United States.

Source: USA TODAY

Furthermore, the company should benefit from its recent introduction of Beach Bellini tea that it plans to introduce across Teavana specialty retail stores across the United States and Canada. This tea is a combination of papaya, pineapple, mango, golden berry, tangerine, and pink rose buds and petals. This newly added product should enable the company to improve its market share in the region. According to EUROMONITORINTERNATIONAL, the herbal tea market in the United States witnessed a record growth of 13% to 2,800 tons of sales in 2015. Looking ahead, the report expects the herbal tea market in the United States to grow at the compounding growth rate of 10% with prices and volumes growing at CAGR of 6% to reach sales of $4.3 billion and 54,489 tons, respectively.

Conclusion

Due to the reasons mentioned above, Starbucks remains an attractive investment opportunity going forward, especially after the recent pullback. The company’s recently announced initiatives should enable it to tap the growing tea and coffee demand in the United States as discussed above. Moreover, the company is bringing in new products to its existing brands that should allow the company to improve its market share additionally going forward.

Starbucks Stock Price