Whether we consciously know it or not, subconsciously we all pretty much
understand that wants are more powerful than needs. Starbucks (NASDAQ: SBUX )
verified that idea again last quarter. Nobody needs a $3 cafe latte especially
in an economic environment as weak as this one. Enough people wanted a $3 cafe
latte in the third quarter, however, to pump up the coffee shop's
year-over-year earnings by nearly 30%. The 37 cents per share Starbucks earned
in its fiscal fourth quarter wasn't a record that honor belongs to the period
ending very early this year, when it pulled in 45 cents. The most recent
quarter's income was tied for the best fiscal fourth quarter ever, though,
which happened to be last year's Q4. More important, that 37 cents per share
in income earned last quarter tops off the company's best year ever it earned
a whopping $1.52 per share in 2011. So much for the notion that consumers are
just too timid and cash-strapped in this new normal market to frivolously waste
cash on gourmet goods. (Odds are good these same broke consumers enjoyed their
coffee while tapping into their local Starbucks' Wi-Fi via their new iPads,
which they also allegedly can't afford.) And yes, the market loved the news.
Traders sent the stock higher by 7% on Friday, taking it to new 52-week highs in
the process. SBUX now trades at nearly 29 times its trailing earnings, and a
frothy 24 times its projected (2012) income. It's a value-oriented analyst
nightmare, but this is a case where the market might know better than the pros
that Starbucks shares can justify these lofty prices. One Thing's for Sure:
Coffee is Hot! Were it just Starbucks doing well, or just its one-day success,
the market's bullish interest could understandably be questioned. It's not
just Starbucks, though. Close competitor Caribou Coffee Company (NASDAQ: CBOU )
is on the same roll. Through its 534 coffeehouses spaced out over much of the
nation, it's been growing its top and bottom line for two-and-a-half years now
after swinging to a profit in late 2008. The prior quarter's $80 million top
line was a best-ever result, and the $4.4 million bottom line also was a
best-ever, at least in terms of operating profit. Though its typical net profit
margin of 4.2% is dwarfed by Starbucks' average 10.1% margins, CBOU shares
also are priced more palatably at 8.8 times their trailing earnings.
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