Seasoned investors understand that traders can get ahead of themselves sometimes, even with a great company like Starbucks (NASDAQ:SBUX). So, it’s entirely possible to like Starbucks stock for the long term while also advising prudence when its price action gets overheated.
Now, don’t get me wrong — if you’re looking for a picture-perfect “reopening trade,” you can’t get much better than SBUX. After all, positive developments in the race to develop a Covid-19 vaccine should, sooner or later, benefit the coffee company and its stakeholders.
But the problem here — in the short term, at least — is that the markets are very forward-looking. Lately, traders have seemingly priced all possible future good news into Starbucks stock.
So, is Starbucks a buy, a sell or just a hold? For the most part, analysts are highly optimistic. But if you ask me, it all depends on your time horizon. When it comes to the short-term swing traders, I think it’s best to wait until the sentiment cools down a little.
A Closer Look at Starbucks Stock
There’s no denying that traders have pushed the Starbucks stock price up to a lofty level. Since the stock bottomed out near $50 in March, the company’s shares have gone on a relentless, epic multi-month run.
On Dec. 7, SBUX was still trading very close to its 52-week high of almost $103, which it set in the previous session. Before the bulls get too excited, though, let’s look back to a similar bull run from the not-too-distant past.
From July 2018 to July 2019, Starbucks stock ran from around $50 to approximately $100. Sound familiar? That’s awfully similar to the recent climb in shares.
Moreover, this year’s bull market has caused the name’s trailing 12-month price-to-earnings ratio to reach a dizzying 129.47. Therefore, value-focused investors might want to think twice before loading up on a piece of the action.
A Venti-Sized Day for Starbucks
For many companies, their biggest event is a quarterly earnings report or maybe a holiday sale. For Starbucks and its stakeholders, though, one of the most impactful events is known as Investor Day.
Typically, shareholders expect the company to address its long-term growth goals on Investor Day. And this time around, the event is scheduled for Dec. 9.
Now, on the surface, this might all sound encouraging for owners of Starbucks stock. However, it’s easy to get caught up in the hype. In fact, the analyst community seems to have taken the event as an opportunity to lift their price targets to the high heavens.
So, while you’re perusing through the pre-event analyst upgrades, bear in mind that skyward hopes and a rich valuation could be setup for a drop in SBUX.
Analysts Are on a Caffeine High
Maybe they’ve been drinking too much coffee or perhaps it’s pre-Investor Day exhilaration, but it seems like something has gotten the analyst community into a price target war on the stock. Here’s a breakdown of different analyst projections.
- Wedbush analyst Nick Seytan boosted his price target from $88 to $101
- UBS analyst Dennis Geiger raised his target from $92 to $100
- RBC Capital Markets’ Christopher Carril hiked his target from $101 to $109
- Oppenheimer’s Brian Bittner raised his target from $101 up to $112
- Piper Sandler’s Nicole Miller Regan raised her target from $83 to $89
- Wells Fargo analyst Jon Tower bumped his target up from $100 to $113
Given this list, could it be a mere coincidence that so many analysts raised their price targets on Starbucks stock prior to Investor Day?
Personally, I doubt it. And because of that, I suspect that overeager investors might time their entry points poorly as sentiment reaches a tipping point.
Bottom Line
Ultra-high analyst expectations might feel good in the moment, but they could also be a setup for a major dip in Starbucks stock. As such, prospective investors need to be careful about when they step into SBUX.
However, that dip — if it does occur — also wouldn’t necessarily be a bad thing. Wall Street is probably right to set high price targets. So, if the stock drops, then that’s your opportunity to grab the shares at a more favorable price point.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content -and crossed the occasional line -on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.