Starbucks (NASDAQ:SBUX) is the largest coffeehouse chain in the world. As of 2020, it had stores in 83 countries. The growth in the brand over the past five years is also evident when looking at Starbucks shares. Over this period, the share price has doubled. Yet over a one-year period, the shares are up a much more modest 16%. Here’s why I think we could see growth when looking to 2022.
Strong demand and new projects
If I put the financials to one side to begin with, consumer demand should help to boost Starbucks shares. Despite the existing size of the business, it still managed to grow store sales by 17% during the quarter ending in early October. This was split between a 15% increase in transactions and 2% from the increased average ticket spend.
I think this goes some way to showing the resilience and longevity of Starbucks that should be carried over into next year and beyond. The business is still seeing growth and pursuing it. One metric that highlights this is that it opened 538 net new stores during the quarter. This puts the total store footprint at a record high of 33,833.
Added to this is the desire to push forward with new initiatives and not rest on previous successes. For example, it has launched a partnership with Amazon Go, enabling customers to go and pick up coffee in a store with no cashiers. This is still in a pilot phase at select locations, but it shows the vision for the future. If projects like this continue, then Starbucks should be able to stay relevant and not get stuck in the past.
Upside potential for Starbucks shares
As an investor, the above points are great, but I do also need to consider the finances. Fortunately, it’s good news here for Starbucks shares as well. For the full fiscal 2021 year, sales came in at $29.1bn, a growth of 24% year-on-year. This led to an improved earnings per share figure of $3.54, up $0.79 from the prior year.
One point I am a little disappointed on is the dividend yield, which sits at just 1.72%. As a mature business, I’d expect Starbucks to offer a much more generous dividend to keep long-term shareholders happy. In fact, if growth does stagnate in coming years, then the lack of a dividend could pose a real risk to the share price.
Another risk that’s worth mentioning is whether consumers will change their spending habits regarding coffee. The pandemic saw revenues drop substantially, as lockdowns forced people to make coffee at home. Although recent results suggest people are back in stores, buying coffee this way is much more expensive. If people start to become more conscious and brew coffee at home, it could hurt Starbucks.
Ultimately, I think the firm is performing very well right now. With new initiatives being rolled out, I think Starbucks shares could do well next year and so am considering buying shares.
Jon Smith has no position in any share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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