Six weeks ago, Gary Tapp, a quantitative strategist at SunTrust Robinson Humphrey, said

Starbucks'

(SBUX) - Get Report

valuation was making him nervous.

While the company wasn't in danger of missing analysts' earnings estimates in the second quarter, Tapp said the stock's high multiple put it at risk if any disappointing news were to be released.

"We don't think anything is going to happen, but certainly if anything does happen, there's vulnerability there," he said. "Earnings are very strong, but our advice is to ... take partial profits."

On Thursday, Starbucks fell 5.6%, or $2.58, at $43.46 after reporting solid same-store sales that nonetheless rattled investors.

The Seattle-based coffee chain saw comparable sales rise 8% in August, above the company's prediction in February that sales would grow between 3% to 7% but down from the double-digit gains seen this year. At 8%, sales growth was the weakest since May 2003.

Analysts said the growth was "impressive," particularly in an environment of weak consumer spending. But it wasn't good enough to justify the stock's lofty multiple. Starbucks trades at 45.6 times 2004 earnings estimates and almost 38 times 2005 estimates.

"While

comparable sales and earnings visibility still remain very strong, we believe multiple expansion from the current 38 times multiple on our calendar 2005 EPS estimate is not likely given a 20% long-term EPS growth rate," said J.P. Morgan analyst John Ivanhoe, who maintained a neutral rating.

Thomas Weisel analyst Skip Carpenter said Starbucks' sales in August were "exceptional in light of recent sluggish sales trends in casual dining, specialty dining and the broader retail sector."

But he maintained his peer perform rating on the stock, citing the rich multiple. "Starbucks'

valuation reflects the existing robust sales and profit trends under way," he said.

Starbucks has historically traded in a range of 27 times to 57 times forward earnings, with an average of 38 times, according to Carpenter.

W.R. Hambrecht analyst Kristine Koerber said she views any weakness in the shares as a "great buying opportunity," noting that the stock has held up well in a difficult environment. Indeed, Starbucks has climbed 30% so far this year while the

S&P 500

is down fractionally.

"Importantly, the company is on track to achieve its earnings guidance," she said. "With a beverage-price increase expected before the holiday season, we could see comp growth accelerate."

Koerber, who has a buy rating on Starbucks, said she believes the stock's multiple will expand "at least in line with earnings growth," which she thinks will be 42% this year and 23% in 2005.

In its four-week period that ended on Sunday, Starbucks posted $418 million in sales, up 25% from same period last year.

Chairman Howard Schultz said the company is "very pleased" with the monthly numbers. "These results reflect the continuing strength of our core business," he said.

In the year to date, Starbucks' revenue has grown 28% to $4.7 billion over the same period last year. Meanwhile, the company's comparable-store sales have grown 11% this year.

"In our opinion, product innovations, Starbucks card, the high level execution in its U.S. store base, and speed of service initiatives continued to drive higher comp sales," said Carpenter.

J.P. Morgan has received noninvestment banking business from Starbucks in the last 12 months and makes a market in the company's shares. W.R. Hambrecht and Thomas Weisel have no banking relationships with Starbucks.