I think the glory days are over for an iconic company.
​Started in 1971 with a small store in Seattle, this company has grown into a global behemoth, with nearly 20,000 stores in more than 60 countries.
In fact, this company has become so ubiquitous that it removed its name from its famous logo, since the image itself had become a universally known symbol for its brand.
[ad#Google Adsense 336×280-IA]In other words, the logo transcended language, conveying its own message without the need for words — a marketing dream come true for any consumer-focused company.
Translating this incredible story into numbers reveals a market cap of over $57 billion, annual revenue of nearly $15 billion, and yearly gross profits of just over $8.5 billion.
This company’s fiscal fourth quarter was very strong as well, with 13% revenue growth from the same period last year, a 29% increase in consolidated operating income and a 37% increase in earnings per share (EPS).
The company’s entire fiscal 2013 was stellar, with more than 1,700 new stores opened and comparable-store growth of 9% in China/Asia Pacific and 7% worldwide.
Reiterating what a great year it has been, this company’s CEO said the quarter “capped off by far the best year in our 42-year history.”
There are very few companies on Earth that can point to this type of continual success. The company I’m referring to is, of course, Starbucks (NYSE: SBUX), which nearly singlehandedly turned coffee shops into an international phenomenon and in the process made many investors wealthy.
While I truly think Starbucks will continue on a profitable path long into the future, the rapid growth story will quickly come to an end.
While I truly think that Starbucks will continue on a profitable path long into the future, the rapid growth story will quickly come to an end. The company will soon shift from growth to mature, where it will join the other mature, successful consumer brands. This means that the kind of returns, like the near-40% gains experienced this year, are unlikely to ever be seen again. In fact, I expect to see a 10%-plus decline in the price of Starbucks shares over the next six months.
Clearly, companies can be growth stories for only so long.
Markets become saturated, competition gets savvier and chips away at market share, and consumers simply become burned out on brands.
Recently, the equity research firm Investment Technology Group (NYSE: ITG) said that it expects Starbucks’ growth to slow in the near future.
Slowing growth means less investor interest, which could well lead to a plateauing or falling stock price. In addition, investors are likely to continue taking profits after such a sharp advance.
However, the technical picture is what has me expecting a decline. Price has fallen off the high in the $82 range near the end of November to around $76 today. Most importantly, the 50-day simple moving average was shattered on the downside, providing zero support for the falling price. The next firm technical support level is the 200-day simple moving average in the $69 area. A 10% decline would take SBUX right to the 200-day simple moving average support level. If this support breaks like the 50-day simple moving average, price could easily slip another 10%.
Don’t get me wrong, I still like Starbucks as a company. SBUX is not going to crash lower, but I see a continued pullback into the first half of 2014 as very likely. Investors would be well advised to take profits soon or even short shares with tight stops from these still-heady levels.
Risks to Consider: As an upside risk, I think it’s unlikely that SBUX continues to push higher, but the potential does exist. Be sure to use stop-loss orders and diversify properly when investing.
Action to Take –> Taking profits now if you own Starbucks (NYSE: SBUX) is a wise move. In addition, shorting the stock now in the $76 range with stops just above $80 and a six-month target price of $69 makes solid investment sense.
— David Goodboy
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Source: StreetAuthority