Can Starbucks Corporation (SBUX) or Yum! Brands, Inc. (YUM) Follow the Leader?

Analysts are also bullish on Starbucks. They believe the company will increase revenue by 12% in each of the next two years. The picture is even brighter for EPS, which are expected to increase by 22% this year and 20.5% in 2014. I anticipate those 13 million member of the Chinese upper class to fuel that growth.

Yum faces challenges in China

Yum! Brands, Inc. (NYSE:YUM) is dedicating $1 billion to global expansion this year. Last month, the firm was given the approval by the Shanghai Municipal Food Safety Committee after Yum! Brands, Inc. (NYSE:YUM) had been accused of poor food quality. However, the scandal will likely still have negative effects on the firm due to the poor press from the incident. More than half of Yum! Brands, Inc. (NYSE:YUM) ‘s revenue comes from China, so expect a decrease in revenue. The company dominates about 39% of the Chinese fast-food industry.

Analysts also anticipate the challenges in China will drag on revenue. They say the firm’s revenue will fall 1% this year, but gain nearly 13% next year. Earnings per share are expected to drop 5.5% this year, but gain 24% next year. However, the price is near historic highs, and I see shares falling during each quarter for the next three reports. Once things are smoothed over in China, I’ll think about picking up shares of this stock.

Where to put your money

Starbucks Corporation (NASDAQ:SBUX) has already impressed me with the way that it has been able to expand quickly in North America. I see the most amount of growth with this firm, and this is where I would put my money. The company has strong growth potential, compared to McDonald’s moderate growth and Yum! Brands, Inc. (NYSE:YUM) ‘s anticipated regression.

Starbucks has made drinking high-end coffee a part of pop culture throughout America. Its efforts to expand that to Asia — taking what was once a primarily tea-drinking continent and adding coffee to the menu — shows the mass appeal of the beverage. It also demonstrates the firm’s ability to create market demand even in some of the hottest nations in the world.

It’s P/E ratio of 34 might seems high to many investors, but that massive growth expectation is warranted. The only major pullback this stock has had in share price was during the recent recession. You might find this company in my portfolio in the days ahead.

The article Can Starbucks or Yum! Follow the Leader? originally appeared on Fool.com and is written by Phillip Woolgar.

Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and Starbucks. The Motley Fool owns shares of McDonald’s and Starbucks. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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