Great Coffee, Bad Business - is Starbucks a Good Investment?

I know, I know. Starbucks has become another American icon. Almost like the fast food restaurants we all love to hate, I can almost throw a rock from one Starbucks to the next. They make great coffee too. They can charge $4-5 dollars for a twenty-ounce cup of java, but in my opinion I wouldn't buy their stock for more than $13. My opinion comes from an analysis of the last nine years of their business, their rapid growth leading to no growth (in fact contraction), the lack of interest in China and the poor management the company has had thus far.

In December, Jim Cramer couldn't recommend Starbuck's (SBUX) during his "lightning round" on the CNBC show Mad Money, stating, "I think SBUX is headed below the $20s...costs are not good...I think the growth prospects are not good, and it has become a very inconsistent company". It's true, Jim Cramer has not liked, nor recommended the stock in my recollection.

On January 7, 2008, Starbucks Board of Directors appointed Howard Schultz as the new CEO replacing Jim Donald. Schultz has stated that his priorities are to "Improve the current state of the U.S. business...Closing non-productive stores...and slowing the pace of opening new stores". I think that Schultz may be able to turn Starbucks around slowly, but why would Jim Cramer change his mind about a company he has loathed for so long?

Jim Cramer stated on Mad Money that he has been "a long time fan" of Howard Schultz and that Schultz had called him to "assure him he would do whatever it takes to turn the company around". Cramer even compared Starbucks to McDonalds (MCD), because of the new leadership and the belief that there is room for innovation and growth.

If you are interested in my investment strategies and my analysis, please read "A Mission Statement for a Solid Stock Trading Strategy. I completed my analysis of Starbucks (SBUX) on January 12, 2008 and below are the results:

Current Price: 19.79

EPS Growth Rate: 29%

Stock Value: 25.54

Where the EPS, Sales and Equity growth rates look good, the stock is worth $25.54. Where the current price is below this value, it is not below the value enough. If you have read my strategy, you know that I have adopted many of Phil Town's analysis strategies including his Margin of Safety (MOS). The MOS is equal to half of the stock value, in this case, $12.77.

Look, even if there was good growth, good customer service or a supply chain that was holding up, I couldn't recommend this stock. I don't even think it is a speculative buy. I think it's a waste of time for your attention and portfolio.

Remember, before you make the move to invest your hard earned money, read this: "Before you Invest ANY Money, READ THIS!" Additionally, if you would like to see or participate in more investing conversation, analysis and debate check out my Chicken Stocks Blog!