How Far Can Starbucks Stock Rally on Earnings?
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I'm looking for the proper word to describe Starbucks (SBUX) - Get Report stock over the past year. Ludicrous, insane and unbelievable are a few that come to mind.
Until the trends start to break down, more gains could be on the way.
Shares were up another 7% to $97.30 in midday trading Friday, but closed even higher, up 8.94% to $99.11. Expectations were lofty before earnings, with shares up 76% in the 12 months leading up to the report, gaining more than 40% on the year.
Even lofty expectations were no match for Starbucks. The company beat on earnings, easily topped revenue estimates and absolutely crushed comp-store sales expectations. Management also inched higher its full-year earnings outlook.
That's what's got the stock moving higher on the day, but how much longer can the rally last?
Shares are now up a robust 88% over the past 12 months and have doubled from the lows less than 13 months ago. Management issued full-year guidance of $2.80 to $2.82 per share. At the midpoint of this year's guidance, shares trade at almost 35 times earnings.
I never bet against the trend. That's far too difficult and often times too painful to do. But at some point, this run seems too stretched.
Trading Starbucks Stock
Starbucks stock had been trading in a very defined channel for most of the past year. The 20-day and 50-day moving averages have been buoying it on most dips as both patient investors and quick traders have enjoyed the ride.
With Friday's action, Starbucks is breaking cleanly out over channel resistance.
From here, even a negative development still seems pretty bullish. That would look something like Starbucks stock filling the gap back down toward $92. If prior channel resistance acts as support, higher prices are likely to come.
Only if this level gives way do bears have any sort of momentum working in their favor. Filling the post-earnings gap and breaking below the 20-day moving average could accelerate the selling. But we'd likely need a market-wide correction to take place for that to happen.
Right now, bulls hold all the momentum and a test of $100 doesn't seem that far off. Shares are overbought (highlighted by the purple line at the top of the chart), as indicated by the RSI indicator. However, that is not reason enough to justify a short bias.
For now, keep it simple: The trend is your friend until it bends.
Below Friday's low could drive SBUX stock down to prior channel resistance. Over Friday's highs could propel Starbucks to $100.
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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.