Can Starbucks (SBUX) Stock Break the Recent Trading Range?

Starbucks Corporation’s (NASDAQ:SBUX) share price remained range-bound over the last twelve months, trading in the range of $52 to $60 a share, after increasing sharply by 70% between 2014 to the end of 2015. In the last twelve months, SBUX’s stock price declined 3%, thanks to its higher valuations.

Starbucks Corporation’s shares are trading around 30 times to earnings and 4 times to book ratio, compared to the industry average of 26 and 2.6, respectively.

Oppenheimer sees limited downside for Starbucks’ stock price to the $54 level with a base case at $65 and upside case at $72. Its shares are currently trading around $60 a share, just below a 52-week high of $61 a share.

In my opinion, Starbucks’ share price will break the recent trading range in the coming days, considering strong momentum in its financial numbers. The company’s strategy of expanding its revenue through new stores, digit presence and innovations is working.

In the latest quarter, comparable store sales increased by 6% in China, increased 3% globally and in the U.S. and Americas. Its consolidated net revenues increased 7% to a record $5.7 billion. Moreover, the company’s operating margin also increased to the record level of 19.8% in the first quarter.

Besides from past performance, SBUX is set to hit a new record in the following quarters. Starbucks plans to open about 2,100 net new stores globally and expects mid-single digit comparable store sales growth globally. Furthermore, its consolidated revenue is likely to increase in the range of 8% to 10% this year. Strong financial performance and global expansion will drive its share price higher, allowing it to break the recent trading range. Therefore, holding this stock seems to be a good strategy.

The author does not own Starbucks stock.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.