After reading Starbucks Corporation’s (NASDAQ:SBUX) most recent earnings announcement (01 April 2018), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for Starbucks
How SBUX fared against its long-term earnings performance and its industrySBUX’s trailing twelve-month earnings (from 01 April 2018) of US$4.39b has jumped 48.36% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 21.64%, indicating the rate at which SBUX is growing has accelerated. What’s enabled this growth? Let’s take a look at whether it is only because of industry tailwinds, or if Starbucks has seen some company-specific growth.
Over the past couple of years, Starbucks grew its bottom line faster than revenue by successfully controlling its costs. This has caused a margin expansion and profitability over time. Viewing growth from a sector-level, the US hospitality industry has been growing its average earnings by double-digit 16.29% over the prior year, and 12.20% over the past half a decade. This growth is a median of profitable companies of 25 Hospitality companies in US including Golden Entertainment, Melco International Development and Famous Brands. This means that any uplift the industry is profiting from, Starbucks is able to amplify this to its advantage.In terms of returns from investment, Starbucks has invested its equity funds well leading to a 93.06% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 24.86% exceeds the US Hospitality industry of 7.05%, indicating Starbucks has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Starbucks’s debt level, has declined over the past 3 years from 38.10% to 35.28%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 10.30% to 138.52% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Starbucks gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Starbucks to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SBUX’s future growth? Take a look at our free research report of analyst consensus for SBUX’s outlook.
- Financial Health: Is SBUX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.