Starbucks Steeped in Froth

On the other hand, most analysts on Wall Street are still on board with Starbucks.

"Starbucks has always been a high-valuation stock, and many people have missed a great ride because they thought it was expensive in 1992, they though it was expensive in 1997 and they think it's expensive today," says Sharon Zackfia, analyst with William Blair. "The reality is that if earnings estimates keep going up, usually stocks perform well, and I think there's a good case to be made that estimates for Starbucks will keep going up."

The company earned $127 million, or 16 cents a share, for its second quarter ended April 2, up from $100 million, or 12 cents a share, a year earlier. Analysts, on average, expected earnings of 14 cents a share, according to Thomson First Call. Even more impressive, Starbucks' results for this year include the effect of its new practice of expensing stock options, which the company says reduced results by 2 cents a share.

Moreover, Starbucks raised its fiscal 2006 earnings forecast to 71 to 72 cents a share from its previous range of 68 cents to 70 cents a share. For the current third quarter, the company sees earnings of 17 cents a share, in line with analysts' mean estimate.

"We started the third quarter with strong 23% revenue growth in April and 6% comparable store sales growth -- near the top of our [long-term] 3% to 7% target range," Starbucks said in a statement. "These results were driven by continued customer demand for our handcrafted beverages, with particular strength in our spring lineup of Green Tea beverages."

Starbucks has outperformed its long-term range for monthly comps so consistently that investors become disappointed when the company's results don't beat expectations. Wednesday was no different, but on a conference call with analysts, the company's founder and chairman, Howard Schultz, chided those who reacted negatively to the number.