On the four Ms, Starbucks Corporation earns 54 for management and 29 for moat. The management score rests on a return on invested capital of 8.5% and a gross margin of 24.2% — figures that describe returns closer to the cost of the capital behind them. Shareholder equity is negative, so the debt-to-equity figure is not meaningful here — usually the mark of heavy buybacks rather than distress, but worth checking. The narrow moat and mixed management are not the same judgement, and the gap between them is where the argument about this business sits.
The valuation runs on assumptions chosen to understate rather than flatter. Growth is modelled at 9.6% a year, below the 10.0% actually measured over the last decade — the model caps growth rather than extrapolating a good run forwards. The exit multiple assumed is 19.2x. That produces an intrinsic value of $20.63, a 10-CAP price of $35.37 and a payback time price of $43.68, with the value zone set at the highest of the three, $43.68. Today's price of $94.88 is 117% above it.
The price is above the value zone and the business scores 29 for moat and 54 for management. Neither test argues for paying up here.
| Price | $94.88 |
| Market cap | $108.2B |
| P/E ratio | 54.5x |
| Return on invested capital | 8.5% |
| Gross margin | 24.2% |
| Debt to equity | -3.29x |
| Free cash flow yield | 2.5% |
| Growth rate used | 9.6% |
| Growth rate measured | 10.0% |
| Exit multiple assumed | 19.2x |
| Company | Moat | Buy price |
| McDonald's Corporation (MCD) | 76 | $135.69 |
| Chipotle Mexican Grill (CMG) | 76 | $21.76 |
| Yum! Brands Inc. (YUM) | 67 | $73.33 |
| Restaurant Brands Intl. (QSR) | 54 | $53.50 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Starbucks Corporation rather than accepting ours.