As the biggest coffee chain in the world, Starbucks hardly needs an introduction. The company operates 35 000 stores in over 80 countries and went public in 1992 at a split-adjusted price of $0.27 per share. Yesterday, the stock closed at $85.62, so we’re talking about some pretty phenomenal investor returns. In those 30 years as a listed company, SBUX has surged by 31 611%.
On the other hand, that impressive uptrend included some very sizeable declines. The last of which lasted from July, 2021, to May, 2022, and dragged the stock from $126.32 to as low as $68.39. The bulls have yet to fully recover from it, as SBUX is still down by over $40 a share from its record.
Given its brand name, financial track record and market position, Starbucks is definitely a very high-quality business. Should we see the recent weakness in its share price as a buying opportunity then? Or should we wait for an even better price down the road? The Elliott Wave chart below might help us in our search for answers.
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The 4-hour chart of Starbucks stock reveals that the decline mentioned earlier is shaped like a five-wave impulse. The pattern is labeled 1-2-3-4-5, where wave 1 is a leading diagonal. The are two things one needs to know about impulses: one, they only occur in the direction of the bigger pattern; and two, a three-wave correction follows every impulse.
Starbucks Stock to Remain Under Pressure
With that in mind, we’ve marked the decline to $68.39 as wave A. The current recovery to $93.48 must then be part of the corresponding correction in wave B. It also looks like an impulse, labeled i-ii-iii-iv-v, so it must be wave ‘a’ of B. This means we can expect more short-term weakness in wave ‘b’ to be followed by another rally in wave ‘c’ of B.
Wave B is likely to approach the 61.8% Fibonacci resistance level, putting targets above $100 a share within the bulls’ reach. Once there, however, the bearish 5-3 wave cycle from the top at $126.32 would be complete. The odds would tilt to the downside again, since wave C is supposed to breach the bottom of wave A. We won’t be surprised to see Starbucks stock eventually falling below the $60 mark.
Besides, the stock trades at a 2023 P/E ratio of 26. That is quite expensive even for a dominant company such as Starbucks. In our opinion, things would get a lot more interesting once the price has fallen near the low $50s. We remain on the sidelines until then.
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