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Starbucks' (SBUX) - Get Starbucks Corporation Report business and recent stock performance are piping hot. But the question is, how long can it last?

The coffee chain's sales and earnings zoomed in its just-completed fiscal year, growing at their fastest rate in at least three years. And the company projects more good times to come, recently

upping its forecast on its potential store count and predicting earnings growth of 18% or more next year.

Investors have been slurping up the news. The stock is up 65% this year and is now trading at about 58 times its expected fiscal 2004 earnings. Even at that level, some investors and analysts think the company might be undervalued.

"I don't know where the growth is going to cap out," said Brian Gilmartin, a portfolio manager at Trinity Asset Management and a contributor to's

sister site,

Street Insight

. "As of right now, this thing is unbelievable." (Gilmartin's fund is long Starbucks shares).

But not everyone is convinced. At least three Wall Street analysts issued lukewarm reports on the stock in the last week, citing valuation concerns.

"We believe Starbucks' share price requires continued upside to sales and earnings," said J.P. Morgan analyst John Ivankoe, in a report issued last week. "The relatively high ... multiple will likely be maintained as long as ... near-term earnings growth is visible, but any modest slowdown brings significant stock risk." (Starbucks has been an investment banking client of J.P. Morgan in the last year.)

Other analysts are even more concerned. The company is getting close to saturating the U.S. market and has yet to show that it can operate overseas in a consistently profitable way, said Barry Sine, who covers the company for H.D. Brous.

"I think their days as a growth company and a growth stock are largely over," Sine said. (Starbucks is not an investment banking client of H.D. Brous, and Sine has no position in the company.)

Far from cooling off, Starbucks has been serving up some hot financial numbers in recent months. Analysts expect the coffee chain to report after the bell Wednesday a full-year per-share profit that's up more than 40% from last year. The company already has told investors that its fiscal 2004 sales rose about some 30%.

On a same-store basis, which compares results at outlets open for 13 months or more, Starbucks' sales grew by 10% last year. That pace would be the envy of many in the restaurant or retail worlds.

For the just-completed fourth quarter, analysts polled by Thomson First Call have forecast that it earned 25 cents a share. The company has previously said that revenue for the quarter came in at around $1.5 billion -- a growth rate of about 36%.

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And both the Street and the coffee chain expect business to keep percolating in fiscal 2005. Analysts expect Starbucks to earn $1.16 a share in its current fiscal year, on $6.27 billion in sales. The company expects its revenue to rise 20% over fiscal 2004, excluding the effects of the just-completed year's 53rd week.

Over the long term, the company has a big opportunity to expand both in the U.S. and overseas, Starbucks bulls say. Indeed, the company has projected that it can eventually increase its store count to 30,000 from 8,700 today.

Starbucks sees opportunities not only in untapped developing markets such as China and India, but in rural communities, highway stops and even existing markets here. In fact, the company last month raised its target to 15,000 U.S. stores from its previous goal of 10,000.

Part of what gives bulls confidence in the company -- and these forecasts --is its track record to date.

"We believe that Starbucks' appeal has been proven to go beyond the urban/suburban consumer, and has reached into the rural and lower-income markets in the U.S., as well as in developing foreign markets where we previously believed prices were prohibitively expensive," said Legg Mason analyst Glenn Guard, in a report issued last week. (Starbucks is not a current investment banking client of Legg Mason.)

But bulls also point to the company's limited competition.

Peet's Coffee & Tea


, one of the few other publicly held coffee chains, has just 87 stores. While Dunkin' Donuts -- owned by

Allied Domecq

-- is promoting its specialty coffees, the chain is still largely known for its baked goods.

"The bottom line

about Starbucks is that they execute, they have a great management team, and the opportunity is there -- who are they competing against?" said Gilmartin.

But the company's stock price has raised eyebrows, even among fans. Over the last five years, the company has traded between 1.1 to 2.8 times the average price-to-earnings multiple placed on the

S&P 500

, said Guard. While the company's median premium to the S&P 500 has been about 1.8 times, the company is currently trading at about 2.7 times, Guard said.

"Starbucks' shares' valuation does not price in much room for a negative surprise, in our view," he said.

And then there are its skeptics. The signs indicate that Starbucks' domestic growth is slowing, argued Sine. While the company recorded a string of months with same-store sales growth of 10% or greater, that pace

slowed this summer to the single digits, he noted.

The company's same-store sales growth

rebounded into the double digits in October, but Sine attributed much of that gain to a recent

price increase.

Until the price hike, "same-store sales were coming in like a NASA countdown," he said.

And while the company talks about big opportunities for new stores in the U.S., Sine doubts the company can continue to expand without cannibalizing sales from current stores or opening unprofitable outlets. The


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customers in rural towns that Starbucks is hoping to tap are unlikely to buy the company's coffee or abandon their local diner to gather at Starbucks, he said. And customers concerned about rising gasoline prices are likely to cut back on little luxuries such as specialty coffee, he said.

"They've done well in the urban markets," Sine said. "I don't see them being successful in Hooterville."

On the international front, the company has struggled to operate profitably, Sine noted. Excluding its Canadian stores, Starbucks' international operation posted an operating loss in fiscal 2003 of $18.5 million, which was wider than a $16.7 million operating loss in fiscal 2002.

The company says its international operations -- particularly in Japan and Great Britain -- are edging into profit, but Sine isn't convinced that the company has the market opportunity overseas that it touts.

"This is not a concept that can be exported to most of the world," he said.