Starbucks, India, and You
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Starbucks (NASDAQ: SBUX) is the undisputed heavyweight champion of the coffee industry. Whether or not they have the best coffee will likely always be debated. Starbucks has just over 17,000 stores worldwide. But 17k isn't enough for Shultz and company. They continue to grow business. But one growth target has peaked my interest: India.
The reason I find India so exciting is because India is home to 1.2 billion people. For perspective, that's greater than the populations of the United States, Brazil, Great Britain, Australia, South Africa, Mexico, France, Italy, Germany, and Indonesia combined. The potential with that kind of population is extraordinary.
Starbucks: China and India
The world's most populous nation is China, and Starbucks is already there. The Chinese growth plan has been very aggressive. Starbucks already has around 500 stores in the country, both company owned and franchised, and they continue to grow that number at a clip of better than 10% a year.
The plan in India is also aggressive: They hope to open 50 Starbucks locations in this, the first year of operations in the country. The first locale is set to open in September in Mumbai. If successful, Mumbai could be home to many more locations. There are almost 14 million people in Mumbai. Again for perspective, that's about half the population of the entire country of Saudi Arabia, where Starbucks currently operates over 65 stores. And that my friends is just one city's potential in India.
China and India represent over 30% of the world's population. When you look at the grand scale of these countries, you realize that Starbucks is barely getting their feet wet.
Starbucks isn't the only company in the world counting on a worldwide caffeine craving. McDonald's (NYSE: MCD) started its McCafe in the United States, but since has grown it to a global scale. McDonald's has cited the popularity of its McCafe concept in places like Italy and Latin America, where sometimes it can even be a separate restaurant.
Tim Horton's (NYSE: THI) recently announced its plans to expand into the Middle East in countries like Kuwait and Qatar. They plan to open 120 locations in the next 5 years in 5 countries in that region. This is the first time Tim Horton's has left the Americas and its success is unproven. But if Starbucks' success in these countries is any indicator, then they should do just fine.
Competitors may be growing internationally as well, but it would be hard to deny that Starbucks is growing the fastest of the coffee players. In this article we just talked about China and India, but we could talk about Japan and Indonesia among others where Starbucks is growing as well. All in all Starbucks is in over 50 countries worldwide.
What does all this mean for you and me? As investors, we are looking for stocks that are going to appreciate in value over time. What does Starbucks look like as an investment?
Some would have you believe that Starbucks does not represent an investment opportunity. The bears cite the European Union mess, the United States debt, the global recession apocalypse that will destroy the Chinese economy...all real situations, and yet since none of us personally have any prophetic ability, we have no idea how those things will pan out. All we now is what has happened and what is happening. Here are some tangible numbers for you based on past results, current numbers, and tangible business plans:
- P/E ratio of 27
- Forward P/E of 22
- 800 planned new stores in 2012
- Same store growth in the USA up 7% so far this year
- current dividend yield 1.4%
This is clearly a growth stock story, despite how big Starbucks already is. This company is growing by leaps and bounds, is priced reasonably, and has a decent (and growing) dividend. This is a company that can not only anchor your portfolio, but can also give you the opportunity for growth. Very few companies can deliver both of those things. While there is always risk while investing in the stock market, you can't live in fear. There will always be someone telling you that the end is near. But in my opinion, this is a buy and hold opportunity for the foreseeable future.
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's and Starbucks. Motley Fool newsletter services recommend McDonald's, Starbucks, and Tim Hortons. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.