Financial Research Report Company Overview Research Paper

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The price is at its level of five years ago, when the external environment was much more favorable for Starbucks. The price of arabica has increased significantly and while Starbucks is a major buyer, it is not the largest buyer and does not have significant pricing power. The competitive pressure that has been applied by McDonald's, Dunkin Donuts and a host of imitators has not eased. Given this, margins can be expected to remain at current levels. While the company can still achieve more improvements with respect to its internal metrics, those are unlikely to drive the stock much beyond its current level. The key driver for Starbucks' stock in the coming years is going to be more dependent on foreign market growth than any other single factor. Foreign market indicators are not a cause for intense optimism. Dubai's default calls into question the long-term growth potential of the Middle East. China's addiction to currency manipulation will eventually be broken, putting at risk the company's plans for rapid expansion in that market as costs of Starbucks' foreign-sourced inputs (such as coffee and paper) will skyrocket at a point simultaneous to declining real incomes among China's middle class.

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There are other potential growth markets, such as Southeast Asia or Japan, but Starbucks is a very high end product in many of these markets and that will limit growth opportunities to growth in the upper middle class of these countries. In short, the stock has performed well since it hit bottom in early 2009, but it has likely achieved the bulk of its growth. The company is well-positioned, hence the "hold" recommendation, but as a growth story Starbucks' operational improvements are not going to offset the risks in foreign markets that….....

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