Can Starbucks Move Higher?

With shares of Starbucks (NASDAQ:SBUX) trading around $77, is SBUX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Starbucks is a roaster, marketer, and retailer of coffee operating worldwide. The company purchases and roasts the coffees it sells along with handcrafted tea and other beverages, as well as a variety of fresh food items through its stores. Starbucks sells a variety of coffee and tea products and licenses its trademarks through other channels such as stores and national food service accounts. In addition to its flagship Starbucks brand, the company's portfolio features Tazo Tea, Seattle's Best Coffee, Starbucks VIA Ready Brew, Starbucks Refreshers beverages, and the Verismo System by Starbucks. Starbucks has developed a solid reputation over the past several years, which has generated a lot of buzz for its products.

Starbucks Coffee introduced Starbucks Gift Cards at select locations in Mainland China. Starbucks Cards can be purchased in three unique design themes, including Thank You, Kind Regards and Happy Lunar New Year. ”The Lunar New Year is a time when family and friends gather to meet, connect and share stories,” said Belinda Wong, president of Starbucks China. “The Card is a convenient way for customers to recognize special people in their lives in a meaningful way and give the gift of Starbucks coffee. It’s the perfect gift for this, and any, occasion, and can be used at our stores in Mainland China year-round.” Since the Starbucks Card launched 12 years ago, $16 billion (U.S. dollars) has been loaded on more than 450 million cards in 27 countries worldwide (as of September 30, 2013). ”The Starbucks Card has become a symbol of appreciation and human connection around the world,” said Adam Brotman, chief digital officer for Starbucks. “We are thrilled to be able to now offer Starbucks Cards to our customers in China.”

T = Technicals on the Stock Chart Are Mixed

Starbucks stock has been exploding to the upside in recent years. The stock is currently pulling back and may need some time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Starbucks is trading between its rising key averages, which signal neutral price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Starbucks options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Starbucks options	25.48%	93%	90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
February Options	Average	Average
March Options	Average	Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Starbucks’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Starbucks look like and more importantly, how did the markets like these numbers?

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	36.96%	27.91%	27.50%	14.00%
Revenue Growth (Y-O-Y)	12.81%	13.26%	11.26%	10.59%
Earnings Reaction	0.27%	7.61%	-0.82%	4.10%

Starbucks has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Starbucks’ recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Starbucks stock done relative to its peers, Dunkin’ Brands (NASDAQ:DNKN), McDonald’s (NYSE:MCD), Green Mountain Coffee Roasters (NASDAQ:GMCR), and sector?

	Starbucks	Dunkin’ Brands	McDonald’s	Green Mountain Coffee Roasters	Sector
Year-to-Date Return	-1.94%	-1.60%	-0.36%	-0.48%	-2.09%

Starbucks has been a poor relative performer, year-to-date.

Conclusion

Starbucks provides in-demand coffee and tea products and services to consumers around the world. The company introduced Starbucks Gift Cards at select locations in Mainland China. The stock has been exploding to the upside in recent years, but is currently pulling back. Over the last four quarters, earnings and revenues have been increasing, which has pleased investors in the company. Relative to its peers and sector, Starbucks has been a poor year-to-date performer. WAIT AND SEE what Starbucks does this quarter.