Will Starbucks Corporation (SBUX) Continue to Heat Up?

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Coffee prices

One of Starbucks Corporation (NASDAQ:SBUX)’ main inputs is (no surprise) coffee. Even though the company hedges against the fluctuations of coffee prices in the near future, the changes in the price of coffee could affect the company’s profit margin in next year before the company secures its next coffee future contracts. Looking forward, Goldman Sachs analysts suspect the price of Arabia coffee will reach within 12 months $1.30 a pound, which is not far from the current price of Arabia coffee. The expected high production compared to the demand is likely to curb coffee prices from rising. If this projection comes to fruition, it could slightly expand Starbucks’ profit margin, or at least it won’t diminish it.

Takeaway

I think that Starbucks Corporation (NASDAQ:SBUX) is on the right track by expanding its brand with acquisitions, partnerships, and by reaching new markets in other countries such as China. The current low coffee prices and the high profitability in China branches could also further widen Starbucks’ profitability in the near future. But, the potential economic slowdown in China could curb the growth rate of Starbucks.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks.

The article Will Starbucks Continue to Heat Up? originally appeared on Fool.com.

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