Starbucks Stock Down 6% Today – Time to Buy SBUX Stock?

Starbucks stock is down nearly 6% today in pre-market stock trading action following the release of the firm’s financial results covering the fourth quarter of the 2021 fiscal year.

Sales of the popular coffee store chain experienced a 31% jump compared to the same period a year ago at $8.1 billion, primarily as a result of lower comps from pandemic-depressed 2020 levels. This figure was around $110 million lower than Wall Street’s consensus estimate for the period.

Global comparable store sales experienced a 17% jump compared to the same period a year ago – primarily due to higher transaction volumes. Higher comparable sales in North America drove these higher top-line results as they increased 22% – also due to higher transaction volumes – while international comparable sales rose only 3%.

Notably, China’s comparable store sales were down 7% compared to a year ago amid a 5% decline in the size of the average ticket. This unexpected deceleration in what has been an engine of growth for Starbucks in past years is possibly one of the reasons why SBUX stock is dropping this morning.

Meanwhile, net operating income for the firm jumped significantly to $1.48 billion – up from a $558.3 million figure reported during the same period a year ago – while net income rose to $1.76 billion – also up from a $392.6 million figure reported a year ago.

As a result, non-GAAP diluted earnings per share landed at $1 per share – in line with analysts’ estimates for the period.

Can this deceleration in the rate at which Starbucks’s Chinese operations are expanding result in the beginning of a downtrend for SBUX stock? In this article, I’ll attempt to answer that question by assessing the firm’s price action and fundamentals.

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Starbucks Stock – Technical Analysis

Today’s pre-market drop is particularly worrying for Starbucks stock as it is resulting in a break below the stock’s 200-day simple moving average. Such an event has not happened since the February-March 2020 pandemic crash and it may be signaling a weak outlook for SBUX stock.

Meanwhile, this 6% decline will also push the stock to break the descending triangle formation shown in the chart.

Prior to this drop, there was a slight bullish divergence in both the Relative Strength Index (RSI) and the MACD as the first posted a similar reading despite the price posting a lower high while the MACD has kept advancing to positive territory upon crossing above the signal line.

Moving forward, if this pre-market drop materializes during the live session, the outlook for Starbucks stock would be bearish as it would result in a break of multiple key supports. A key area of support to watch in this case would be the $100 level for a total downside risk of 6% based on today’s quoted pre-market price of $106 per share.

Starbucks Stock – Fundamental Analysis

Starbucks’s disappointing performance in China comes at a time when the Asian country is reporting a spike in the number of daily COVID-19 infections. Authorities have cited seasonal factors as the primary reason for this temporary uptick in the daily tally but they warned that the presence of the highly-transmissible Delta variant may contribute to making the situation worst in the coming weeks.

Sales in Asia have been progressively becoming a large reporting segment and top engine for the coffee store chain’s growth in the past few years. Back in 2012, they only accounted for around 10% of the company’s top-line results but they expanded to account for around 20% of the total by the end of 2018. Meanwhile, China alone accounted for 12% of this firm’s sales in this latest quarter.

The importance of this region and the potential impact of COVID may slow down the rate at which Starbucks’s top-line results will be growing in the near future.

With this in mind, the current forward P/E ratio of 30 for the firm seems a bit high considering that earnings per share are expected to grow at a pace of around 13% to 15% per year in the next two years.

All things considered, the short-term outlook for Starbucks is bearish but a sharp  decline in the stock price may be an opportunity for long-term investors to snatch some shares of a great brand and company at a more decent valuation.

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