Over the last couple of weeks, I've received emails from several people asking me why I think Starbucks Coffee Company's (Nasdaq:SBUX) stock has been languishing - despite the company's numerous growth opportunities and decent earnings.

It's a good question! And so we're going to have a look at four risks that could be holding the coffee seller back.

#1 - 40,000 Stores is a Tall Order
Firstly, I think the stock is currently trading near its 52-week low because people are skeptical of the company's goal and ability to add as many 10,000 stores over the next four years. Ultimately. management wants it to grow into a 40,000 store behemoth.Don't get me wrong, I think the goal is attainable. After all, the company has some cash on its balance sheet, has been kicking off solid operational cash flow. It has relationships with both Wall Street and the banking industry that it could tap to fund that growth. However, saying you are essentially going to be as big, or possibly bigger than a company such as McDonald's (NYSE:MCD) is a "grande" order - even for Starbucks.

#2 - Everyone is Selling Specialty Coffee Now
Another reason the stock has slumped is other fast food chains such as McDonald's, Dunkin' Donuts, and Burger King (NYSE:BKC) have all jazzed up their coffee lines over the past year, offering tasty treats such as iced coffees or premium blends. This has undoubtedly taken away some business from the company. Having these fast food stalwarts treading on Starbucks' turf is a big risk!

#3 - Lagging Sales Are Bad For Growth
Next, take a look at the company's most recent third-quarter results. All and all, they were decent. The company earned 21 cents per share, met the average consensus estimate, and its same-store-sales were up a healthy 4%. However, take a look at its sales number. Total sales for the quarter came in at $2.36 billion which is just shy of the $2.39 billion that some Wall Street analysts had been expecting.

No big deal, right? In most cases this wouldn't be an issue, but, when a company says that it's gearing up to grow and then falls short of expectations, like it or not, it does matter. It doesn't look good from an investor relations perspective, and it's also worrisome given that its expenses are rising too, including labor and milk.

#4 - Insider Selloff
Another thing worth considering is many investors (particularly institutional investors) pay attention to insider activity. Over the last six months, despite the stock's slide, senior executives have sold more than 480,000 shares. Why? Do they know something? I'm sure this selling has turned off some prospective and existing shareholders as well. (For greater insight, read Can Insiders Help You Make Better Trades?.)

'Bonus' Risks
• The slowing economy and a potential slowdown in consumer spending
• The rising cost of insurance and construction and its potential impact on new store growth
• The growing consumer awareness of the calorie and fat content in Starbucks drinks - and its potential impact on future foot traffic.

Bottom Line
Although it might not sound like it, I am still a bull on Starbucks. However, there remain a host of risks to this story that every would-be investor should be aware of before getting involved.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  2. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  3. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  4. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  5. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  6. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  7. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  8. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  9. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  10. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!