Starbucks Stock Up 7% Today – Time to Buy SBUX Stock?

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The price of Starbucks stock is surging 7% this morning in pre-market stock trading action after the company pledged to invest $1 billion in areas including employee training and compensation and to further improve consumers’ experience at its stores.

This announcement came alongside the release of the firm’s financial results covering the second quarter of the 2022 fiscal year.

Some of these initiatives include increasing the hourly rate of all US-based store employees to a $15/hour floor while also offering a higher rate to employees with the longest tenures. As a result, the company aims to raise its national average to as much as $17 per hour.

Moreover, the company will be introducing debit and credit card tipping to allow consumers to compensate their favorite baristas when completing their purchases.

Starbucks is also planning to create a digital application through which its 240,000 partners – a designation used for employees – can share their opinion with the senior management while it will start doubling the amount of training time offered to its new baristas as well.

The announcement comes around a month after the firm’s founder, Howard Schultz, came back to lead the company and amid increasing efforts from employees to unionize in multiple states of the US to press for more benefits.

Shortly after these announcements were made, the Starbucks Workers United initiative congratulated workers for their campaign to pressure CEO Schultz and the corporation to expand its benefits to partners.

During the three months ended on 3 April this year, Starbucks reported net revenues of $7.6 billion resulting in a 15% year-on-year jump while global comparable store sales increased 7%. This top-line result was in line with analysts’ estimates for the period.

Notably, comparable store sales in China decreased 23% amid a 20% decline in the number of transactions completed in that important region. The company cited mobility restrictions and lockdowns in the Asian country as the reason for this pronounced downtick.

Finally, Starbucks’ GAAP earnings per share increased 4% compared to a year ago at $0.58 while adjusted EPS were down 2 cents compared to Q2 2021 at $0.59 per share. The consensus estimate from analysts for the period stood at $0.60 per share.

Alongside these announcements, Starbucks also published a press release in which it officially launched a program called “Third Place” that seeks to create a deeper connection with customers via digital solutions starting with non-fungible tokens (NFTs).

“We plan to create a series of branded NFT collections, the ownership of which initiates community membership, and allows for access to exclusive experiences and perks”, stated the firm’s Chief Marketing Officer, Brady Brewer, in regards to the initiative.

The fact that the company is potentially putting an end to unionization efforts through the introduction of these benefits and programs is possibly the reason why Starbucks stock is rising today.

What could be expected from this coffee stock after these developments? In this article, we will be assessing the price action and fundamentals of SBUX stock to outline plausible scenarios for the future.

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Starbucks Stock – Technical Analysis

starbucks stock
Starbucks (SBUX) price chart – 1-day candles with multiple indicators – Source: TradingView

The price of Starbucks stock has been on a sharp decline since late November last year as the market has adopted a risk-off attitude amid the confluence of multiple negative catalysts.

Inflation in the United States, upcoming changes in the country’s monetary policy, the armed conflict between Russia and Ukraine, and the introduction of lockdowns in China are just some of the negative catalysts that are currently weighing on the valuation of the coffee store chain.

This morning’s pre-market uptick is pushing the price above a crucial threshold found at the $80 level. If the move materializes during the live session, this could be considered a relevant event from a technical standpoint.

That said, momentum indicators are still standing in negative territory as the Relative Strength Index (RSI) is sitting at 32 (bearish) while the MACD is neck-deep into negative territory and below the signal line.

Moving forward, a decisive break above $80 could signal a potential change in the price trend. However, whether that push will ultimately lead to a full-blown reversal or a short-lived rebound will depend on how the situation keeps unfolding in China and the evolution of some of the macro variables cited above.

Starbucks Stock – Fundamental Analysis

From a fundamental perspective, the situation in China could be deemed as a temporary setback for the business as things should go back to normal once the spread is contained.

The crisis in Europe, however, introduces a high degree of uncertainty as an escalation in the armed conflict in the form of direct involvement of other countries in the region could drastically affect the market’s sentiment toward Starbucks.

Currently, the stock is offering a decent 2.6% dividend yield while trading at a forward P/E multiple of 23.6x. This multiple can be considered attractive as long as the company manages to live up to the market’s expectations for its earnings growth.

Starbucks is one of the world’s most recognized brands and the firm has ambitious plans to expand in China that could keep fueling its top and bottom-line growth in the future. Moreover, under the leadership of CEO Schultz, the firm’s prospects appear to be promising and the initiatives announced today are perhaps the beginning of a new era for the business.

With this in mind, this recent sharp downturn in the stock could be providing an opportunity to acquire a fantastic business at a decent price.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.