2-Star Stocks Poised to Plunge: Starbucks?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, specialty coffee giant Starbucks (NAS: SBUX) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Starbucks' business and see what CAPS investors are saying about the stock right now.

Starbucksfacts

Headquarters (Founded)Seattle (1971)
Market Cap$32.8 billion
IndustryRestaurants
Trailing-12-Month Revenue$11.7 billion
ManagementFounder/Chairman/CEO Howard Schultz
CFO Troy Alstead
Return on Equity (Average, Past 3 Years)24.4%
Cash/Debt$2.05 billion / $550.9 million
Dividend Yield1.5%
CompetitorsMcDonald's (NYS: MCD)
Tim Hortons (NYS: THI)

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 22% of the 7,459 members who have rated Starbucks believe the stock will underperform the S&P 500 going forward. These bears include Berishtimes and llgrout.

Earlier this fall, Berishtimes succinctly summed up the Starbucks bear case: " Too much competition + spread too thin = red [thumb]."

Starbucks currently sports a particularly lofty P/E of 27. That represents a premium to other large restaurant stocks like McDonald's (19), Tim Hortons (12), and Yum! Brands (NYS: YUM) (23).

CAPS member llgrout shows skepticism over Starbucks' recent growth initiative:

So their answer is to start selling alcohol ... nothing like admiting your current business model isn't working. Booze is very popular, so just turn all their coffee shops into bars, and problem solved. However, I think that folks who still go there want a coffee shop atmosphere, if they wanted a bar, they would go to a bar, so they are going to alienate some of their current customers. Also, if they over price their booze like they over price their coffee, they will continue to have the same problem they got now. Too much competition selling the same product at less.

What do you think about Starbucks, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Interested in another easy way to trackStarbucks?Add it to your watchlist.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of Starbucks and Yum! Brands. Motley Fool newsletter services have recommended buying shares of Starbucks, McDonald's, Tim Hortons, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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