4 Reasons to Buy Starbucks Stock Today

Updated

Source: Coolcaesar at the English language Wikipedia, from Wikimedia Commons

It would be easy to say, after two decades of breakneck growth in both the United States and abroad, that Starbucks has reached its saturation point. At this point, buying in while shares trade for 32 times earnings seems ridiculous.


While I agree that it seems expensive, I believe that for long-term shareholders, there are four key reasons the stock is worth buying today. In fact, it's one of the five stocks I'm thinking about buying in May for my Roth IRA. I've been calling out one company per month for almost two years now, and the portfolio has returned 21%, beating the S&P 500 by almost 5 percentage points!

In an attempt to keep my reasoning simple, amid a mountain of knowledge available, here are my reasons for believing in the company, and its stock, today.

1. Leadership and culture
If there's one thing I know from my own experience, and from reading about the experience of others, is that "soft" variables like leadership and culture matter. These are hard things to measure, but Glassdoor makes it a little easier. In 2013, employees were happy enough with CEO Howard Schultz to make him the 16th best CEO this year, and Starbucks was rated one of the top 50 places to work as well.

Schultz showed his resolve to maintain the company's generous health package for employees during the recession. Wall Street noted that the company was spending more on health care than on coffee, but Schultz didn't cave, maintaining the benefits throughout.

Should Schultz leave, or employee sentiment change drastically, that would be a cause for concern.

2. Smart growth domestically
Sure, there might not be that many areas left for Starbucks to put up new stores, but that doesn't mean the company is just going to stay stagnant. The recent acquisitions of Evolution Fresh and Teavana have opened up new products to customers, which could, in turn, increase the total addressable market.

The company also noted that only one in three customers buys food while at Starbucks. The acquisition of La Boulange could change that statistic, as the company tries to improve the quality of its food offerings. A move in this direction could easily help the company compete with the likes of Panera , a company whose stores have a similar feel, but -- for now -- much better food options.

But maybe the most intriguing tidbit from the last conference call has to do with Starbucks drive-throughs. Though stores equipped with this function (like the one pictured above) account for only 20% of U.S. locations, they contribute 45% of the company's operating profit. As the company plans to include this feature in new locations, it could be a huge boon.

By combining the food qualities from La Boulange and the drive-through in more car-centric locations, its easy to see how even McDonald's might be in for a fight with the fast-food crowd.

3. Maintaining sustainable production lines
One thing that set Starbucks apart to receive some Earth Day love this year is its commitment to sustainability. The company not only focuses on buying more fair-trade coffee than any other organization in the world, but it has also set up centers in Costa Rica and Africa to teach farmers best practices in sustainability. It has also reached out to small farmers through its Small Farmer Sustainability Initiative.

4. International opportunities in China and India
In terms of dollars and cents, this is where the biggest opportunity may lie. Many news outlets will report that there are more than 3,000 Starbucks locations in China. But analysts have mistakenly included the rest of the Asia-Pacific region's locations as being located in China. In reality, the store count stood at 700 last September.

And when it comes to India, Starbucks is just scratching the surface, having only opened nine stores in the country as of this month.

I'm not saying Starbucks will ever be as financially successful in China or India as it is in North America, but look at how much room for growth there could be.

Country

Population

Locations

USA

314 million

11,128

28,000

China

1.34 billion

700

1,920,000

India

1.24 billion

9

138,000,000

Sources: Starbucks, voanews.com, World Bank.

And the addition of Teavana will help win over the more predominantly tea-drinking crowd as well.

Could Starbucks really challenge McDonald's?
McDonald's turned in a dismal year in 2012, underperforming the broader market by 25%. Looking ahead, can the Golden Arches reclaim its throne atop the restaurant industry, or will this unsettling trend continue? Our top analyst weighs in on the future of McDonald's in a recent premium report on the company. Click here now to find out whether a buying opportunity has emerged for this global juggernaut.

The article 4 Reasons to Buy Starbucks Stock Today originally appeared on Fool.com.

Fool contributor Brian Stoffel owns shares of Starbucks. The Motley Fool recommends McDonald's, Panera Bread, and Starbucks and owns shares of McDonald's, Panera Bread, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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