The SBUX proposition is not a pretty picture from several angles: SBUX edged out a profit for the year 2013 when the price of coffee had dropped dramatically. The price of sugar dropped also. I suppose what might be happening here is that investors are terrified that if SBUX can't make money in a perfect world scenario, then it doesn't bode well going forward and prices need to reflect a more conservative valuation.
SBUX is currently worth $53.8 Billion, 754.9 million shares outstanding, sales of $15.3 billion and historical margins in the 15% range (with not much hitting the bottom line). There are many analysts following the stock and only 2 have a hold rating and the rest have buys/outperform ratings with roughly an $85 price target. There is a lot of room for analysts to downgrade this stock, in other words. Sales have grown 7.5% a year for the past 5 years.
The technical picture is very dangerous because there are some very high profile days of heavy selling which I have marked in red triangles. It would be ideal to sell short against those triangles, but that would be too easy. Now we have to take a bit more risk and short at lower prices.
The biggest reason in the short term to short the stock is the massive run up in the price of coffee. You can see how coffee has impacted the price of SBUX on the upside, but since January when the price of Coffee took off to the upside, the price of SBUX is barely down. Sugar was also down HUGE last year and it too is rising and creating another bearish pressure on the margins of SBUX.
10% downside risk with about 7% upside risk. If prices rise 3% from here the odds shift heavily towards a short position with better ratios. (13% downside with 4% risk).
Cheers.
Tim 2:03PM EST, 2/25/2014
SBUX is currently worth $53.8 Billion, 754.9 million shares outstanding, sales of $15.3 billion and historical margins in the 15% range (with not much hitting the bottom line). There are many analysts following the stock and only 2 have a hold rating and the rest have buys/outperform ratings with roughly an $85 price target. There is a lot of room for analysts to downgrade this stock, in other words. Sales have grown 7.5% a year for the past 5 years.
The technical picture is very dangerous because there are some very high profile days of heavy selling which I have marked in red triangles. It would be ideal to sell short against those triangles, but that would be too easy. Now we have to take a bit more risk and short at lower prices.
The biggest reason in the short term to short the stock is the massive run up in the price of coffee. You can see how coffee has impacted the price of SBUX on the upside, but since January when the price of Coffee took off to the upside, the price of SBUX is barely down. Sugar was also down HUGE last year and it too is rising and creating another bearish pressure on the margins of SBUX.
10% downside risk with about 7% upside risk. If prices rise 3% from here the odds shift heavily towards a short position with better ratios. (13% downside with 4% risk).
Cheers.
Tim 2:03PM EST, 2/25/2014
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