Starbucks a Good Stock to Buy – Maybe

by GuestPoster on April 15, 2012

Here are some insights on Starbucks as an investment if they have been on your radar. There are many qualities that would potentially make this among one of the good stocks to buy now, but with some caviats. I will explain them and you can invest at your own risk. Remember that invest in even awesome looking companies does not guarantee high returns, any returns or that you won’t lose all your money. So invest wisely and start by consulting a financial advisor.

Financial Strength of Starbucks Stock

So let’s start with the good news. Well, they are a financially strong company. They have good liquidity levels which means they probably won’t be in financial crisis mode any time soon.  If you are a beginner and learning how to invest in stocks, stick with strong companies that are making money and have a history of good performance.  Don’t take a risk on start ups or companies that don’t have a track record.

But among the best investments, you are basically looking for profitability and one that is growing over time. That is the goal of a business, am I right? So what is their profits and margins look like? Well, it’s pretty good. In fact, it’s better than anyone else in this industry, which is even a better story. Profit margins are hard in the food services industry, and Starbucks is going above and beyond in this area.

Their use of debt is pretty good too. That is because profitability is rising allowing with their rates of borrowing. That is a good sign when their financing activities turn into cash.

Brand Value – Intangible Asset

Here is the more non-tangible thing that makes this a possibly good stock to invest in. They have a really strong brand, and one that doesn’t seem to be going away at any point. They basically created the premium coffee industry in the US and in most places in the world where coffee was just an afterthought. They will be leaders in this space for a long time.

The only caviat is that they may be properly priced or over priced in the market. This is a subjective call, but it’s not so undervalued that I would give it a margin of safety in this regard.

Future Prospects

They have over 40,000 stores around the world.  This is something they are constantly looking to leverage.  In addition, their financial strength is also enabling them to branch out into different lines of business.  They are coming out with a single cup brewer model soon and they have started to build independent looking coffee shops around the Seattle area.

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