SBUX - Starbucks Passes The Greenblatt's Magic Formula Filter

2024-05-23 04:10:55 ET

Summary

• Starbucks has a high return on tangible capital that improved last fiscal year and is higher than the ratio for the two preceding years.
• Investors today are purchasing SBUX stock at about a 33% discount as measured by the forward EBIT/EV ratio.
• The return on tangible capital and the EBIT/EV ratio are two ratios that Joel Greenblatt points to in explaining his success as an investor.

Introduction

In this article, we review Starbucks' ( SBUX ) recent financial record using the criteria offered by Mr. Joel Greenblatt in his bestselling book "The Little Book That Still Beats the Market"*. In particular, we review Starbucks' return on tangible capital and earnings yield while making adjustments to reflect the methodology that Mr. Greenblatt employed. When applicable, we identify the rationale behind the adjustments to book values and connect it to the framework outlined in his work. After our study, we shall find that Starbucks' return on tangible capital is higher than in previous years and that the earnings yield provides an attractive margin of safety. Investors with a holding period of at least a year should consider the stock a worthwhile addition to their portfolio....

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