Full disclosure: I'm addicted to caffiene, and Starbucks makes GREAT coffee. They're putting one in the first floor of my building, and I'm literally counting down the days.

But Starbucks always brings up interesting issues, especially in context of morality. There are those that accuse Starbucks of driving out local coffee shops, or for selling non-fair-trade coffee (which isn't even true) and all the social/environmental/economic arguments therein.

However, from an analysis perspective, Starbucks looks like a great buy, even if the price is about $10 too high right now. Check out the TakeStock Quality Rating - it's a 10. I'm sure it's on a lot of investors' radar, if they don't own it already.

But if you feel strongly about SBUX's apparent lack of social conscience, you're left in a moral quandry - do you invest in a great stock with tremendous growth prospects (gotta love those addictive products) that will undoubtadly make you money? Or do you stick to your moral guns, and implicity boycott companies that don't live up to a given standard of ethics, however supposed their transgressions may be? You could have the same discussion with Nike, Wal-Mart, or Halliburton (snicker).

I'm interested to see what people think about this. How much of a role does morality play in your portfolio?

Morality does play a role in my investments. I avoid pharmaceuticals and oil companies, but I don't nit-pick a actively search for the laundry list of sins every company  has commited.

As for Starbucks, I don't find the charge that they drive out competition to be true. I think it's primarily because Starbucks offers no discount... their coffee is about the same price as any other coffeeshop. The second reason is that people who are really passionate about coffee rarely credit Starbucks with "great" coffee. (I am not one of those people... most coffeeshop coffee tastes about the same to me) But some indepedent stores gain a reputation for selling great coffee. I hear that employees from Starbucks and other coffeeshops come to this place called Sunergos here in Louisville. I happen to know the owners and have asked them about Starbucks. They credit Starbucks with making coffeeshops popular, so they believe they wouldn't have a business at all if it wasn't for Starbucks. Quite the opposite of feeling threatened :)

I'll copy-and-paste here what I said about Starbucks' valuation on Motley Fool's boards. We must remember that there's no such thing as "undoubtedly" making money. That's why I still consider Starbucks too expensive. I'll get interested down around $25. Otherwise, I can find other stocks because from this point, the potential for market-beating returns in Starbucks simply isn't there (unless it were to become even more overvalued).

EPS can optimistically be estimated to grow 25% over the next 3-5 years (avg analysts' estimate is 22%). Placing about a 1.3 PEG multiple on 22% EPS growth, I don't want to pay more than 28x this year's earnings (that is, 22 x 1.3). Analysts are estimating $0.89 EPS for this year, which I'm assuming is reasonable since Starbucks is a predictable company. So $0.89 x 28 P/E = $24.92 per share... I could settle for $25 :)

Yet even then, I wouldn't exactly "back up the truck" since I'd be paying a high multiple for high-end growth estimates. Of course, Starbucks won't fall into the value range that I prefer without something going horribly wrong, but I honestly don't think $25/share is unreasonable to expect. Remember, stocks are volatile. :)

All that needs to happen, in my opinion, is gas to go over $3/gallon, prompting worries on Wal Street that consumer discretionary spending will fall. And one of the easiest places to cut back is coffee. Even if they don't cut out coffee, more people will quit buying premium drinks, or cut down to a smaller size, choose McDonald's or other decent tasting competitors, or save money by brewing at home. Weak consumer spending is the achilles heel of Starbucks and I won't be surprised at all to see this stock fall at least to $25, especially if spending is weak and the company misses estimates.

Of course, that'll be good news for me, because I'll be buying Starbucks below $25... and backing up the truck below $20 :)