Trade-Ideas: Starbucks Corporation (SBUX) Is Today's Momo Momentum Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Starbucks Corporation ( SBUX) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Starbucks Corporation as such a stock due to the following factors:

  • SBUX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $278.1 million.
  • SBUX has a PE ratio of 36.6.
  • SBUX is currently in the upper 30% of its 1-year range.
  • SBUX is in the upper 25% of its 20-day range.
  • SBUX is in the upper 35% of its 5-day range.
  • SBUX is currently trading above yesterday's high.
  • SBUX has experienced a gap between today's open and yesterday's close of 1.4%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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More details on SBUX:

Starbucks Corporation operates as a roaster, marketer, and retailer of specialty coffee worldwide. As of September 30, 2012, the company operated 9,405 company-operated stores and 8,661 licensed stores. The stock currently has a dividend yield of 1.1%. SBUX has a PE ratio of 36.6. Currently there are 17 analysts that rate Starbucks Corporation a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Starbucks Corporation has been 4.1 million shares per day over the past 30 days. Starbucks has a market cap of $57.5 billion and is part of the services sector and leisure industry. The stock has a beta of 0.78 and a short float of 1.2% with 2.72 days to cover. Shares are up 42.7% year to date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Starbucks Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, good cash flow from operations and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:
  • SBUX's revenue growth has slightly outpaced the industry average of 4.6%. Since the same quarter one year prior, revenues rose by 13.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SBUX's debt-to-equity ratio is very low at 0.10 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.05, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, STARBUCKS CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • STARBUCKS CORP has improved earnings per share by 27.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, STARBUCKS CORP increased its bottom line by earning $1.79 versus $1.62 in the prior year. This year, the market expects an improvement in earnings ($2.23 versus $1.79).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 25.5% when compared to the same quarter one year prior, rising from $332.90 million to $417.80 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.
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