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Starbucks' Shares Too Expensive Despite Solid Quarter

NEW YORK ( TheStreet) -- There's no denying that Starbucks (SBUX - Get Report) is an excellent company.

The coffee giant, which has also become a cultural phenomenon, has built itself into one of the top three quick service restaurants not only in the U.S. but across the globe. What's scary about this company is that, despite its successful track record, I don't believe that Starbucks has reached its full potential.

Like McDonald's (MCD), Starbucks has demonstrated a remarkable ability to innovate, which we don't typically expect from a restaurant operation. Unlike McDonald's, though, I can't say that Starbucks's stock is on the value menu -- not at a price-to-earnings ratio of 37, which is more than twice that of McDonald's P/E of 18.

As of this writing the stock is up more than 7%, reaching a high of $73.52. Investors are rewarding the company for yet another solid earnings result, which included a 25% jump third-quarter profits. So, I don't want to overstate the importance of value here. Nor do I want to put too much emphasis on the P/E ratios, especially when Starbucks is performing so well.

But with Starbucks now priced for perfection, pressure is on managements to keep the jolt going. That's no easy task.

On Thursday, the company reported net income of $417.8 million, or 55 cents per share, on revenue of $3.74 billion. These figures, while representing year-over-year growth of 25% and 13%, respectively, also beat Street estimates. Even more impressive, though, was the 8% increase in same-store sales, or comps, which tracks the performances of stores that have been opened at least one year.

In that regard, I couldn't find anything to complain about. Starbucks posted solid growth across all regions, including in the U.S., where comps grew 9%. By contrast, McDonald's, which recently reported 1% increase in comps, said earlier this week that people were eating out less. So, Starbucks' performance certainly stands out. And I can discount how effective management has been by closing underperforming stores, while licensing out its operations to improve results.

The question, though, is to what extent this level of performance can continue, given that areas like the Middle East and Africa lagged behind with 2% growth. Plus, Europe has yet to get its act together, even though Europe also netted 2% comp growth.

You're wondering, then what's the problem? Look, I'm not taking anything away from the company's performance. I just believe that the Street is still expecting a bit too much.

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