Starbucks (SBUX): Oversold?

April 11, 2024

SBUX is buzzing among investors who are tempted by shares trading near 52-week lows.

Does LikeFolio data justify recent SBUX weakness, or is it time to start watching for a turnaround?

Let's break it down...

At a high level, data shows softness in SBUX demand among english speakers, with mention buzz and web traffic showcasing a stark decline following holiday hype.

  • SBUX Mentions: -4% YoY
  • SBUX Web Traffic: -8% YoY

Persistent inflation, high interest rates, credit card debt and a resumption of student loans are putting a damper on consumer spending. ULTA issued a warning last week -- we DO see this theme across other Starbucks-adjacent names, like Chipotle.

But as previously established, the market already knows. SBUX shares are down -20% YoY and -7% in the last 3 months alone -- so we believe this weakness is already priced in.

Instead, it may be smart for investors to look at happiness, our long-term growth indicator. SBUX happiness levels are extremely consistent, holding in a +/- 1 point range of 60% positive for nearly the last 2 years. This suggests pricing power and long-term resilience.

And the younger generation is still hooked on its brand.

Starbucks garnered the top spot among teens in Piper Sandler's Spring '24 survey, commanding 37% of mindshare in the coffee/tea/beverage sector. (I can attest to this, Mia requests Starbucks "strawberry refresher" every time I'm coming over).

Last quarter the company failed to meet investor expectations. SBUX posted same store sales +5% in North America but faces rising competition in China from lower-priced rival Luckin Coffee -- SBUX avg. transaction in China fell -9% as the country's economy struggles.

We'll be watching for signs of improvement in Mentions and Web Traffic to see if the company has any promising updates for guidance ahead of its next earnings release at the end of this month.

If we see traction, it may be time to pounce. Bonus-- SBUX pays a 2.65% dividend...

Members, stay tuned...

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