Starbucks Stock Beats Jitters, Keeps Perking

When Starbucks first went public in 1992, there was a severe danger of overstimulation.

After all, the Seattle-based coffee company’s stock was introduced at $17 a share, which the experts said was pretty pricey.

If you took that price and divided it by the company’s earnings per share - a common way of determining whether a stock is expensive - you would’ve come up with a price-earnings ratio of 66, or about three-and-a-half times higher than the average stock at that time.

Sure, Starbucks was a fascinating company with a good product. But high demand might push the stock price way beyond where rational measures of value would dictate.

Rational, smashonal. If you spent, say, $1,700 to buy 100 shares, your investment would now be worth about $5,000.

The experts aren’t always right. But they’re often right. And many experts now say Starbucks looks attractive.

Diane Daggatt, with Pacific Crest Securities, rates Starbucks as a buy.

Some analysts worry that the company’s bottom line will be hampered by higher coffee prices and slackening public demand for caffeine, but Daggatt notes that Starbucks management has taken appropriate cost-cutting steps to deal with increased product prices, and adds that just in case the latte craze goes away, the company “continuously delivers a pipeline of new products.”

There’s Infusia, a new line of teas now for sale. There’s Frappacino, a “creamy, smoothy low-fat iced coffee beverage,” about to be introduced.

And there’s now a Starbucks drive-through in Bellevue. Drive-through stores can sell a lot of product without eating up much in real estate costs.

Meanwhile, existing sit-down stores continue to increase their sales even as Starbucks adds more outlets around the country.

Beyond all that, Starbucks’ price-earnings ratio is down to about 54. That’s still expensive, compared to the average stock, but then, Starbucks shows no sign of being an average stock.

Starbucks closed Friday at $25.50.