 Good day, fellow investors. I still remember it very, very vividly. It was September 2002 and I was looking to buy McDonald's as a stock. It had fallen big time. It was around $19. I remember the $19 when I was looking, okay, should I buy it or not? I was very young then, but I was already looking at bargains. However, I didn't buy, okay, I had other investments which did very, very good, but since then McDonald's is a 10-bagger almost. I didn't buy, I was happy I didn't buy while I was following because it went from $19 to $13 and then it exploded to the current level. The trouble was then that there was the first earnings loss after a long, long time restructuring costs didn't grow in the US. Everybody was thinking the market was saturated and things like that. There was the old CEO going and coming. So that was the story around McDonald's and now we see it explode 15, 20 years later, which makes it a great investment plus the dividends. Now there is another company that isn't getting much love and is in a similar situation and that's Starbucks. So today we're going to discuss Starbucks. What is there for Starbucks in the long term? Will it be a next McDonald's where it can double 10 times over the next 15 years? Is it a great business where the stock price doesn't really matter because the return on invested capital will give you long-term returns? Let's check. So Starbucks grew revenue at 6% in the last quarter. Just 2% growth, comparable growth in the US, which is not something Wall Street is thrilled about. However, Starbucks is just half of its revenue from the US and 50% is the rest of the world and the US has only 5% of the global population. So there is plenty of room for growth. If we go to China, Starbucks has 3,200 stores in China today and plans to have 5,000 by 2020. Comparable sales growth in China is 6%, which shows that Starbucks is gaining traction there and the trend Starbucks is focusing there on the increased middle class and the attractiveness of a Western lifestyle where coffee substitutes tea. So it's difficult to put a number on what will happen. Nobody knows, but OK, Starbucks is now 50% North America, 50% the rest of the world. 5% population, 95% population. What will Starbucks look like in 10-15 years is the question long-term investors have to ask themselves. These are the projections from the management, comparable store sales growth, 3% to 5%, high single digits, net revenue growth, earnings per share growth of 12% and annual return on invested capital 25%. Those are huge numbers. Let me just explain quickly what is comparable growth. If you have 100 stores and you open 10 new stores and you grow 10%, then comparable growth is zero because the new 10 stores added the growth. So we are then looking just at what was the growth in the stores that were already operating for a whole year. That's comparable growth where you can compare this year with the previous year at the same store. So let's be conservative and put an 8% growth rate on Starbucks's current earnings. The estimated earnings for 2018 are in the range of 3.32 to 3.46, giving a 2018 forward price earnings ratio of 17.75, which is not that high for such a growth story. As long as Starbucks manages to grow that return on invested capital by scaling its business at 25%, that's a great business for Munger. But there is a reason why Buffett isn't buying Starbucks and we'll discuss that later. Secondly, if they manage to grow earnings at 10%, then your returns over the long term will be around 10% plus the dividend, which are great, great returns. So the key is okay, see what are the risks for the business, what is the strength of Starbucks over the next 10-15 years? The first fear is Wall Street's fear is okay, what happens in the US? They are growing, they say just 2% comparable growth. Is the market saturated? Will they be able to take advantage of the customer base and continue to grow? Now I say even if they stay flat in the US over the next 10 years, it will be still a great business, a great cash machine that will allow them to grow around the world. That's one, okay. The second risk is that China might not turn as planned. Starbucks has about 14,000 stores in the US, which makes one store per 23,000 inhabitants. The ratio in China is currently at one store per 445,000 inhabitants. However, if you put that into an economic purchasing power perspective, the Chinese market could be just 15% of the US market for a while, where there wouldn't be much more to expect over the short to medium term. So Starbucks is expanding, that might put a cost, a burden on the company, tighten margins over the long term and not show that growth for a long term. And if Wall Street sees slower growth in China, maybe it will be like a hockey stick over a longer period of time, then again the stock would be hit. So if you're thinking about Starbucks, really follow those and try to dollar-cost average over time. Starbucks is, if they continue to be a strong brand, is a dollar-cost averaging good business to invest in. The third reason why Buffett isn't buying such a high return on invested capital business is the difference between Starbucks and McDonald's. McDonald's, okay, I'm hungry, I'm going to spend 1 euro, 1 buck to be full. Starbucks, I'm going to pay 5 bucks for a cup of coffee. I love it, I love the coffee, but it's a premium product. If there is a recession, I think that Starbucks with the premium product will, all that it goes, might see, let's say, not growth, but even a drop in sales. It won't go bankrupt probably, but it would see a drop and it might be hit severely if there is a recession. So those are all things to watch for, but the brand is there, the global opportunity is there, we might see really Starbucks doing very, very good over the long term. So now the return might be 10%, let's be conservative, let's put it at 6%, 7% over the long term with a dip for a recession, with a dip from something else, from not 10%, 7% from this point in time. Perhaps if the stock prices drops further, it will reach 10%, 12%, and then it becomes interesting as a long term strong investment. Let's check what's going on with the stock. Very important to check. There was the hype in 2015, huge growth, expansion all over the world, and then fundamentals are still growing, but the stock price is going nowhere. And this is a very intriguing investment case, because when the fundamentals are growing, sooner or later, if the fundamentals continue to grow, the stock price will catch up. So see how this fits your long term portfolio. Sometimes the best investments are right under our noses and smell like coffee. Thank you for watching, looking forward to your comments. See you in the next video tomorrow.