Starbucks Corporation (SBUX) & Four Reasons to Buy

Source: Coolcaesar at the English language Wikipedia, from Wikimedia Commons

It would be easy to say, after two decades of breakneck growth in both the United States and abroad, that Starbucks Corporation (NASDAQ:SBUX) has reached its saturation point. At this point, buying in while shares trade for 32 times earnings seems ridiculous.

While I agree that it seems expensive, I believe that for long-term shareholders, there are four key reasons the stock is worth buying today. In fact, it’s one of the five stocks I’m thinking about buying in May for my Roth IRA. I’ve been calling out one company per month for almost two years now, and the portfolio has returned 21%, beating the S&P 500 by almost 5 percentage points!

In an attempt to keep my reasoning simple, amid a mountain of knowledge available, here are my reasons for believing in the company, and its stock, today.

1. Leadership and culture
If there’s one thing I know from my own experience, and from reading about the experience of others, is that “soft” variables like leadership and culture matter. These are hard things to measure, but Glassdoor makes it a little easier. In 2013, employees were happy enough with CEO Howard Schultz to make him the 16th best CEO this year, and Starbucks was rated one of the top 50 places to work as well.

Schultz showed his resolve to maintain the company’s generous health package for employees during the recession. Wall Street noted that the company was spending more on health care than on coffee, but Schultz didn’t cave, maintaining the benefits throughout.

Should Schultz leave, or employee sentiment change drastically, that would be a cause for concern.

2. Smart growth domestically
Sure, there might not be that many areas left for Starbucks Corporation (NASDAQ:SBUX) to put up new stores, but that doesn’t mean the company is just going to stay stagnant. The recent acquisitions of Evolution Fresh and Teavana have opened up new products to customers, which could, in turn, increase the total addressable market.

The company also noted that only one in three customers buys food while at Starbucks Corporation (NASDAQ:SBUX). The acquisition of La Boulange could change that statistic, as the company tries to improve the quality of its food offerings. A move in this direction could easily help the company compete with the likes of Panera Bread Co (NASDAQ:PNRA), a company whose stores have a similar feel, but — for now — much better food options.

But maybe the most intriguing tidbit from the last conference call has to do with Starbucks Corporation (NASDAQ:SBUX) drive-throughs. Though stores equipped with this function (like the one pictured above) account for only 20% of U.S. locations, they contribute 45% of the company’s operating profit. As the company plans to include this feature in new locations, it could be a huge boon.

By combining the food qualities from La Boulange and the drive-through in more car-centric locations, its easy to see how even McDonald’s Corporation (NYSE:MCD) might be in for a fight with the fast-food crowd.