Course 404: Aggressive-Growth Stocks
Conclusion: Knowing the Odds
In this course
1 Introduction
2 Is Cash Flow in Line with Earnings?
3 Has Growth Hurt the Balance Sheet?
4 What Are the Trends in Growth Rates?
5 How Consistent Is the Company's Growth?
6 Are Free Cash Flows Positive or Negative?
7 How Much Does the Company Earn on Its Capital?
8 How Has the Stock Performed?
9 How Expensive Is It?
10 How Does the PEG Ratio Compare with Those of Similar Firms?
11 Conclusion: Knowing the Odds

Starbucks must continue to grow very rapidly--and for a long time--to justify its valuations. Maybe it will. Maybe it won't. We do know that the company's sales growth has slowed, its earnings growth is highly unpredictable, and that it has earned low returns on its capital thus far--all factors that lower the odds of success. Because Starbucks' rapid growth in the 1990s has come at a time of economic prosperity, one also wonders how well the company will do in the next recession. After all, premium coffee is not one of life's necessities. The correct conclusion is not that Starbucks is a "sell," as the parlance goes on Wall Street. After examining the pros and cons, you might feel comfortable with the risks and decide to go ahead and invest. Just realize that capitalizing on the premium-coffee craze through Starbucks is a high-stakes game.

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