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Starbucks Throws in the Towel
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Thursday, 03 July 2008
Starbucks Corp (SBUX: NASD)
In a sign of the times, the mighty Starbucks is in retreat. The iconic coffee company will be closing 600 U.S. stores and laying off as many as 12,000 employees.
Starbucks is still growing outside the United States. But that growth is badly needed to justify the share price. Even after a drop of 66% from the 2006 highs, SBUX still sports a lofty growth multiple. If you buy shares at the present level, you’ll be paying nearly 27 times earnings for projected revenues over the next year.

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So is Starbucks a short if it’s not a clear buy? Probably not. These days it’s more of a morality tale.

Back in 2006, when SBUX hit its all-time highs, the company could do no wrong. The time to go short was when all of Wall Street was cheering.... and when the growth multiple was even more out of whack than it is today.

Justice Litle
Editorial Director, Taipan Publishing Group
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