Phil Town

Are The Big Guys Moving In?: The Most Meaningful Indicator (Also: Can SBUX Keep Growing?)

This question came in the other day from Steve, in the comments:

Watching Starbucks - SBUX. Strong Big 5 numbers. Projected earnings 20+%. MOS exists now. Definitely a mote. I like the company. Waiting for institutions to start buying. What is the most meaningful indicator for you, Phil, in seeing accumulation activity?

The most meaningful indicator that something wonderful is going to happen with the stock price is one of the Big Five Numbers: Operating Cash Flow.  When it starts increasing, what usually follows is an increase in earnings.  And when that happens the institutions buy.  Watch the cash. 

In Starbucks' case, the cash is increasing even as the price goes down.  Could be the Big Guys are thinking it's peaked.  On the other hand, it's sure looking cheap if it can keep these numbers up, and it's a heck of a brand.  However, right now is not the time to guess if this is the bottom.  Watch the MACD, Stochastic and MA and when they all move up, go for it if you really think you know the business and can answer this question:

Can Starbucks sustain a 20% growth rate and continue to double its size every 3.5 years? 

Send me the answer and I'll publish it.

Starbucks - Is it a 4M Company?

A few days ago Al wrote in to ask me about his analysis of Starbucks.

Here was his question to Phil Town:

Finished Rule #1 three weeks ago trying to get other friends on board to help in the quest for good companies. Watch list is around ten companies and growing started to get frustrated, until 10:30 pm yesterday, SBUX Starbucks. Please verify the big five numbers.

Sticker Price
Current EPS $0.75
Est EPS Growth $ $5.30
Est. PE 10 years 44
Future Stock Price $233.27
Sticker Price $57.66
MOS $28.83
21.6 % used for EPS growth

Management looks good, brand moat. Insider trading very active and a little confusing to interpet. What do you think?

Here's how I responded (you can also read my response in the Comments):

TAKE YOUR TIME

Many of you write in asking how to roll over your retirement plans. Here's a question from Kay:

Hi Phil,

I am a nurse at a local hospital with a 401K and a 403B plan.  I have a 14% payroll deduction every two weeks.  The funds are managed by Fidelity. I have yet to see a 10% return.  I have given myself 6mo to become a real rule #1 investor.

I have a paper account at MSN and am making money!  When I get the guts to jump in what is the best strategy to get my $130,000.00 out of Fidelity and into the stocks I pick.

YOUR HOMEWORK: STARBUCKS (SBUX)

A lot of you have been writing in asking about SBUX, so here's a homework analysis for you.

Hi Phil,

I've thoroughly enjoyed your book and I'm anxious to get started.  I've been a buy and hold/diversify guy for years, and I have paid a big price for that.  But I'm now ready to take more control.

Anyway,  I currently own Starbucks which, in spite of the market ups and downs, has ultimately been very good to me.  I purchased it in '95 and it has been far and above the best performing individual stock I own. 

As a way of getting some practice with the numbers and to determine the current sticker price (when I see a Starbucks right across the street from another one, I wonder how much more can they grow?), I came up with the following. (All from MSN/Money as you direct in your book.)