Why Starbucks is still a risky investment sector

Why Starbucks is still a risky investment sector

Over the past few months, Starbucks corporation (NASDAQ: SBUX) have not been performing well in the stock market. The company’s stock had shrunk by 4 percent. The company, which was founded in Seattle, Washington in 1971, is a coffee company. It is one of the most recognizable brand of coffee in the world, operating in more than 28,000 locations all over the world. Starbucks offered its stock to the public for the first time back in 1992. The aftermath of this action led to the increase in its pricing.

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Investors and analysts were really surprised as Starbucks performed well in the stock market. This year, the company recorded a strong market valuation. Its shares had increased by 43 percent compared to five years ago selling at a rate of $57. Despite the recorded positives, there are a number of that might plague the company. In recent times, news that might likely tarnish the company’s image has occupied the media and the management is trying curtail the situation.

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Early this year, investors evaded the company’s shares owing to its slow growth in the US, its home country. The company claimed that the holiday season had affected its sales. Recent studies have shown that an increasing number of customers are spending much time at home due to retirements, those working from home. These customers now brew their own coffee at home. There lot of factors that make investing in Starbucks a risky investment.

Pros & Cons of Buying Starbucks corporation (SBUX) stocks

In terms of price fluctuation, Starbucks is highly susceptible to commodity price volatility. The company spends on purchasing to the necessary ingredients required in it production. They make purchases on coffee beans, milk, sugar and some other commodities. In terms of competition, Starbucks is having to face competitors, such as McDonalds and Dunkin Donuts, that offer low priced products in a bid to win more customers to themselves. In the event of an economic turn down, people might not really stop taking coffee but they may want to patronize cheaper options resulting to a loss of market share to Starbucks.

Companies like Pepsi and Coca Cola are also strong competitors. Starbucks now has to maintain healthy partnership with retailers of its products such as Best Buy, Barnes & Noble and other stores in a bid to keep them ahead in competition.

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In terms of international market, the company is planning to increase its operation base from the 28,000 locations to minimum of 36,000 locations by year 2021, most of which are targeted outside America. In China, the company have not had impressive sales. China was touted to contribute the largest portion of sales income. China will be having an additional 3000 retail outlets to the existing 2000 retail outlets. The company must first address this situation to meet its target. Another factor affecting it growth in China is the country’s tough regulatory market which must be strictly considered in decision making. Similar situation is also found in India, Japan and emerging markets.

In terms of Market, the American stock market has recorded positive growth ever since its decline in 2009 and the economy is growing impressively. Most companies are trying to utilize these positives. With plans that the federal reserve might increase rates, trading risks are likely to show up.

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