Why There's Too Much Decaf In Starbucks Stock
To fully appreciate what this means, one only needs to look closely at Chipotle. While it enjoys a multiple that is 22 points higher than Starbucks, its growth expectations are highly attributable to performances similar to what Starbucks is executing.
When you also consider that Chipotle's popularity and stock have grown commensurate not only to strong customer traffic but also strong sales volumes, one has to wonder that Starbucks should eventually catch up. Or perhaps Chipotle is overvalued.
At present, Starbucks has more than 17,000 cafes around the world and recently said it will accelerate new-store growth this year to approximately 1,000 net new stores globally. Similar to Chipotle, it is clear that it expects to grow into any valuation permitted by heavily expanding customer traffic.
Bottom Line
If astute investors are willing to substitute lattes for burritos and apply an extra 22-point multiple to Starbucks, they'll have a stock that is undervalued by at least $15 -- essentially buying a company that can only grow from current levels, one that just earned $309.9 million, or 40 cents a share.
For this reason, I have to think that Starbucks just might be one of the most undervalued stocks on the market.
At the time of publication, the author was long MCD and help no position in any of the other stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.