Should You Take a Chance With Starbucks?

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With shares of Starbucks (NASDAQ:SBUX) trading around $70, is SBUX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Starbucks is a roaster, marketer, and retailer of coffee operating worldwide. The company purchases and roasts the coffees it sells along with handcrafted tea and other beverages, as well as a variety of fresh food items through its stores. Starbucks sells a variety of coffee and tea products and licenses its trademarks through other channels like stores and national food service accounts. In addition to its flagship Starbucks brand, the company’s portfolio features Tazo Tea, Seattle’s Best Coffee, Starbucks VIA Ready Brew, Starbucks Refreshers beverages, and the Verismo System by Starbucks. Starbucks has developed a solid reputation over the past several years, which has generated a lot of buzz for its products.

Starbucks announced this week that it will move its European headquarters to the United Kingdom from the Netherlands, a decision that will result in the coffee chain paying more taxes in the U.K. Though the company has maintained that the switch is meant to allow Starbucks executives to get closer to Britain, the company’s biggest market in Europe, it also isn’t going unnoticed that the relocation has come after Starbucks suffered significant criticism over its low tax payments in Britain last year.

T = Technicals on the Stock Chart Are Mixed

Starbucks stock has been exploding to the upside in recent years. The stock is currently moving higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Starbucks is trading below its rising key averages, which signals neutral to bearish price action in the near-term.

SBUX

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Starbucks options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Starbucks Options

27.9%

72%

70%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of Thursday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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