Starbucks Corporation (SBUX): The Growth Story Continues

Speaking of McDonald’s

McDonald’s is seeing a slowdown in its business. The company’s same-store sales aren’t expected to grow more than 2% to 3% in the next few years as the market for cheap fast food gets saturated. Also, the company currently “enjoys” a bad image such that going to McDonald’s for a meal is seen as a shameful activity as if one is doing drugs or something. Many people see the food in McDonald’s as the main culprit of the obesity problem in the US and the company tries to counteract this problem by adding healthier items to its menu.

A few days ago, McDonald’s announced its quarterly results and performance was less than impressive. Currently, McDonald’s is a good stock for those looking for a decent dividend yield coupled with stability, but those that are looking for aggressive growth can find better value in Starbucks.

Speaking of Dunkin’ Donuts

This company also announced its earnings in recent days. The company generated $0.41 (up 15.5% compared to the same quarter last year) in net earnings and $182.5 million in revenue. The company’s net earnings passed the analysts’ estimates slightly while the revenue fell a little behind. The company enjoys very healthy margins as its operating income margin was as high as 50% in the last quarter. The company’s same-store growth was 4%, which is above McDonald’s but below Starbucks.

Dunkin’ will continue to grow at a double-digit rate for the foreseeable future because of the new store openings. I prefer Starbucks over Dunkin’ because Starbucks is a fairly large company, which means you can get some growth with some stability when you invest in it. Dunkin’ is a smaller company and it doesn’t offer as much stability.

Conclusion

The growth story continues on for Starbucks as it has strong margins, healthy demand and it seems to have the coffee costs under control. Currently McDonald’s enjoys the lowest P/E ratio among the three companies but it also has the lowest growth rate. The company’s current P/E ratio is 18. In comparison, Starbucks enjoys a P/E ratio in the mid-30s and Dunkin’ enjoys a P/E ratio in mid-40s. Conservative investors should invest in McDonald’s, aggressive investors should pick Dunkin’ and those looking for a fine balance between strong growth and stability will find a lot of value in Starbucks.

The article Starbucks: The Growth Story Continues originally appeared on Fool.com and is written by Jacob Steinberg.

Jacob Steinberg 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. Jacob 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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