Check out my latest Danger Zone interview  with Chuck Jaffe of MarketWatch.com.
Starbuck is in the DangerZone today.
Valuation is writing checked the business operations cannot cash.
SBUX bulls are blind to the competition SBUX faces on many fronts, one of the most important of which is MCD.
Current valuation of SBUX, (~$49/share), implies NOPAT  growth of over 12% compounded annually for 10 years. That would put SBUX’s NOPAT at over $4.8 billion or 77% of MCD’s 2011 NOPAT. I find it nearly impossible to believe that SBUX will ever be over 3/4s the size of MCD. I find it absurd to buy the stock when it already implies that.
As I detailed in Time To Dig In To McDonalds (MCD) , SBUX simply cannot compete with MCD’s low-cost and distribution advantages. yet, SBUX is priced as if it is going to be more successful than Burger King (BKW), Wendys (WEN) and all the other stores that have tried an failed to make a run at MCD.
Put simply, SBUX’s valuation is writing checks the business cannot cash.