Dunkin Brands Group Inc (NASDAQ:DNKN) has been gaining momentum lately, and management is expecting 3% to 4% growth in comparable store sales for 2013 thanks to successful initiatives like new and limited time product offerings. Besides this, the company still has room for store growth since the market is quite underpenetrated outside of its core northeastern region.
On the other hand, Dunkin Donuts doesn´t offer the same quality and differentiation that Starbucks provides to customers, it´s much more targeted towards the lower end of the pricing spectrum, so the risk to Starbucks seems to be limited in this case too.
Growth initiatives
Starbucks Corporation (NASDAQ:SBUX) still has plenty of growth opportunities ahead of it over the next few years, and emerging markets look particularly exciting for the company. The company plans to open nearly 13,000 worldwide stores in fiscal 2013, about half of them in China, which is expected to become its second largest market by 2014. Sales in the China/Asia Pacific segment increased by 22% in the last quarter, with comparable store sales rising by 8% and showing that demand remains particularly strong in the region. Other countries like India and Brazil offer promising growth prospects too, and the expansion process is barely in its initial stage in many emerging countries.
Starbucks is not afraid of innovating and expanding into different areas: Evolution Fresh, La Boulange, and Teavana are acquisitions that still have a lot of potential for growth. High quality pastry products should not only contribute to growth, but also enhance the Starbucks experience in the middle term, the company is also experimenting with wine and beer in select locations, which is a risky but very exciting possibility.
Besides all this, Starbucks has been expanding into the consumer packaged goods business, considering its strong brand recognition and its ability to connect with grocery and mass-channel customers through licensed on-premise stores–it’s no wonder the company has been doing well there too.
Bottom line
Starbucks Corporation (NASDAQ:SBUX) is trading at a P/E ratio above 33, and this seems a bit too extended, so patience may be a good idea. On the other hand, this is a premium company that deserves a premium valuation, so don´t be too picky–a slight pullback may be a good chance to position your portfolio for growth by investing in this high quality company.
Andrés Cardenal 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. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Premium Company at a Premium Price originally appeared on Fool.com and is written by Andrés Cardenal.
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