The Ikegps Group Ltd (ASX: IKE) share price is up slightly today following the release of mixed half-year results for 2021. At the time of writing, the ikeGPS share price is trading at $1.13, up 0.89%.

Ike designs, markets and sells integrated GPS data capture devices, related software and consulting solutions. The group’s sales activities is divided into two segments: utility & communications, and new business. Key products include ikeGPS and Spike.

What’s driving the ikeGPS share price lower

For the period ending September 30, Ike reported revenue of $4.4 million, down 15% over the prior corresponding period (pcp). The company said despite the drop in revenue, this was a solid result during a Q1 period disrupted by COVID-19.

Ike noted that no customers or material pipeline contracts were lost, but rather network projects had been deferred.

Gross margin came to $2.9 million, around 67%, which was lower than the 72% attained over the first half of FY20. Fixed costs from Ike’s analysis segment were maintained, with the left-over capital used to improve operating efficiency going forward.

Operating expenses increased to $6.3 million compared to the $4.9 million spend on the comparable period. The additional splurge related to the company’s investment strategy focusing on growing the capability for its sales, solutions engineering, delivery and marketing teams. In-turn, this is expected to support its sales pipeline, customer onboarding and the overall customer experience for large infrastructure clients.

The group made an operating loss of $2.5 million for the first-half of the 2021 financial year. This compares to a $1.1 million loss in the pcp.

Ike recorded $21.9 million in cash and receivable at the end of September, with no debt.

Outlook for FY21

With focus now on the second-half of the year, Ike remains committed to delivering contracts on time. Furthermore, the company will also seek to push revenue opportunities through upselling its products to existing customers.

Ike revealed that significant tailwinds in the industry have the potential to flow through the company. It has predicted that more than $350 billion will be invested into fibre and 5G infrastructure during the next five years. This translates to more than 3,000 electric utilities needed for network build and maintenance.

About the IkeGPS share price

The IkeGPS share price has increased by almost 40% since the start of August. While the company has been positioning itself for future growth, its field data collection product and laser measurement tools are proving successful. Ike reached a 52-week high of $1.24 on Tuesday.

More reading

• Why the Advance NanoTek (ASX:ANO) share price is storming 4% higher
• Bega Cheese (ASX:BGA) share price jumps 10% on Lion Dairy & Drinks acquisition
• Evolve (ASX:EVO) share price lifts after turning loss to profit
• What happened to the NextDC (ASX:NXT) share price in November?
• Why the Viva Leisure (ASX:VVA) share price is in a trading halt

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Advance NanoTek Ltd (ASX: ANO) share price is pushing higher on Friday after the release of a sales update.

At the time of writing, the advanced materials company’s shares are up 4% to $4.80.

What did Advance NanoTek announce?

This morning the company revealed that it has experienced an improvement in sales in the US over the last few months.

This follows a difficult period where demand for sunscreen ingredients dropped off a cliff because of the pandemic.

According to the release, the company has been informed by its US distributor that over 50% of its original 180T stock holdings in XP powder has been sold in the past four months.

In addition to this, the distributor intends to start ordering new stocks of dispersions in December.

Things aren’t quite as positive in Europe, with new orders down materially compared to a year earlier. For the five months to 30 November, European new orders are down 55% on the prior corresponding period.

Management advised that this is a consequence of restrictions relating to the second and third waves in key markets on the continent.

What about the future?

The company is hoping to get a boost in the second half from manufacturing sunscreens on behalf of companies that lack the necessary equipment to manufacture sunscreens using its ZinClear XP powders and dispersions.

This follows its recent investment in its own manufacturing facility. However, this remains subject to TGA approval, which is expected in February or March.

Outlook.

Management continues to expect its profits to be down significantly in the first half, with only a small profit result being forecast.

However, it remains hopeful for a stronger second half as demand picks up.

It commented: “We are optimistic of a much improved profit result for the second half FY21. ANO already has stock in US and Europe to meet the anticipated increase in demand for products, with further shipments to continue throughout December.”

More reading

• Why the ikeGPS (ASX:IKE) share price is lifting today
• Bega Cheese (ASX:BGA) share price jumps 10% on Lion Dairy & Drinks acquisition
• Evolve (ASX:EVO) share price lifts after turning loss to profit
• What happened to the NextDC (ASX:NXT) share price in November?
• Why the Viva Leisure (ASX:VVA) share price is in a trading halt

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Advance NanoTek Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Bega Cheese Ltd (ASX: BGA) share price has returned from its trading halt and is surging higher on Friday.

At the time of writing, the food company’s shares are up 10% to $5.57.

Why is the Bega Cheese share price surging higher?

Investors have been buying the company’s shares this morning after it completed the underwritten institutional placement and the institutional component of its 1 to 4.5 pro-rata accelerated non-renounceable entitlement offer.

This will allow the company to push ahead with its plan to purchase Lion Dairy & Drinks for $534 million.

Bega Cheese has raised approximately $284 million at a 9.1% discount of $4.60 per new share. This comprises $181 million via its placement and $103 million via its institutional entitlement offer.

It will now push on with the retail component of the entitlement offer, which aims to raise a further $117 million. This will bring the total raised to $401 million.

The acquisition.

Bega Cheese has agreed to acquire Lion Dairy & Drinks for $534 million. This will expand its offering with a whole host of popular brands.

These include milk-based beverages such as Dare and Farmers Union, Yoplait yoghurts, Pura milk, and Juice Brothers juices.

In addition to this, Lion Dairy & Drinks has Australia’s largest national cold chain distribution network supplying food service and convenience stores. It also has a national manufacturing footprint comprising 13 sites.

Management expects the combined business to generate annual revenues in excess of $3 billion. This compares to the revenue of ~$1.5 billion Bega Cheese generated in FY 2020.

The acquisition is expected to generate significant synergies. Management’s base case is for synergies of $41 million per annum. This is primarily from milk network optimisation, indirect procurement, and a corporate reorganisation.

In light of this, the deal is expected to be double digit earnings per share accretion in FY 2022.

Upon announcing the deal, Bega Cheese’s Chief Executive Officer, Paul van Heerwaarden, commented: “We are very pleased with the performance of acquisitions made in recent years which are achieving or exceeding our profit targets. The recent company restructure and ERP implementation will allow us to integrate this Acquisition and take advantage of the various synergies and growth opportunities across domestic and international markets.”

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX 200 falls on Thursday
• ASX 200 flat: Bega Cheese announces major acquisition, WiseTech reaffirms guidance
• Bega Cheese (ASX:BGA) announces $534 million Lion Dairy & Drinks acquisition

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Evolve Education Group Ltd (ASX: EVO) share price lifted to a 52-week high of 18.5 cents early today, after the company released its interim half year report. Evolve reported net profit after tax (NPAT) of NZ$6.23 million for the six months to 30 September, a significant turnaround from the loss of NZ$1.44 million for the same period last year. The Evolve share price has since retreated slightly to it current price of 18 cents.

What else did Evolve report

The company realised an increase in net profit despite booking 6% less revenue at NZ$65 million for the same period. It attributed the revenue drop to the impact of closure and disruption to its centres arising from COVID-19. 

Evolve reported underlying earnings before interest, tax, depreciation, and ammortisation (EBITDA) for the six months of NZ$12.4 million.  This compares well with the NZ$3.9 million it reported for the six months prior.

The company says it was able to record strong earnings despite lower revenue due to operational improvements and efficiencies achieved both at its centres, and at the support office. In addition, the 10 Australian centres acquired in calendar year 2019 have been performing well.

Evolve says it is on track to resume its acquisition activities in 2021.

What is Evolve Education

Evolve Education is a New Zealand company that provides care and early childhood education to children until they attend primary school. Evolve offers both centre-based and home-based services, and is operating under brands that include Lollipops, Active Explorers, Little Lights, Little Wonders and Pascals.

The company operates 127 childcare centres across New Zealand and Australia. Its centres had to close during various periods throughout the pandemic, which affected its revenue.

However the company was able to receive wage subsidies support from the New Zealand government for an amount of NZ$11.8 million. In Australia, the company was also eligible to receive the government’s Early Childhood Education and Care Relief package, as well as JobKeeper payments.

About the Evolve share price in 2020

The Evolve share price has doubled since news of successful vaccine came out in early November. For the year, the Evolve share price is higher by 22%. Today’s share price of 18.5 cents is a 52-week high. The company commands a market cap of $200 million. 

More reading

• What happened to the NextDC (ASX:NXT) share price in November?
• Why the Viva Leisure (ASX:VVA) share price is in a trading halt
• These ASX dividend shares have been named as buys
• This is when you should sell your shares
• How I’d make a reliable passive income with cheap dividend stocks

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Nextdc Ltd (ASX: NXT) share price seemed to be the gift that keeps on giving. Its share price only slumped 23% from peak to trough during the initial March sell-off to a low of $6.59 before running to a record all-time high of $14 in early November. 

However, its success came to a halt in the latter half of November. The NextDC share price is down 15% this month. This compares to the 10% gain for the S&P/ASX 200 Index (ASX: XJO) and 0.62% increase for the S&P/ASX All Technology Index (ASX: XTX) sector.

Growth to value rotation 

ASX data centre companies trade at eye watering valuations despite low double digit revenue growth. NextDC boasts a market capitalisation of $5 billion but in FY20 delivered $205.2 million, $104.6 million earnings before interest, tax, depreciation and amortisation (EBITDA) and a net loss after tax of $45.2 million. Trading at 24 times FY20 revenue places the company in a similar valuation bracket as Zip Co Ltd (ASX: Z1P). 

The recent rotation from growth and tech stocks to value and cyclical stocks such as banks, travel and resources is likely to blame for weakness in the NextDC share price. But even then, the company is underperforming the broader information technology sector. 

Buy now, pay later style valuations

Data centres have been able to maintain premium valuations due to the increasing relevancy of cloud and anticipated long term growth for the sector. In the NextDC annual general meeting held on 13 November, the company noted that global investment in public cloud services and infrastructure will more than double from 2019 to 2023. The COVID-19 pandemic has pushed the digital transformation initiatives for many organisations to adapt to the new ways of doing business. 

Despite the excitement and sustained growth expected for the cloud sector, NextDC’s growth can appear lacklustre at face value. In FY20 its revenue from data centres increased 18% to $200.8 million and underlying EBITDA increased 23% to $19.5 million. This compares to many ASX 200 tech shares such as Altium Limited (ASX: ALU) and WiseTech Global Ltd (ASX: WTC) that deliver revenue growth in the range of 20-40%. 

Megaport Ltd (ASX: MP1) slumped on quarterly results 

Despite earnings growth that may appear to be lacklustre at face value, the NextDC share price has been able to hold up well during earnings updates. 

Megaport on the other hand experienced a sharp sell off after its quarterly update. On 21 October, the company highlighted that revenue for the quarter had only increased 2% quarter-on-quarter to $17.3 million. Its shares fell as much as 15% on the day. 

More reading

• 2 ASX shares delivering explosive growth in FY 2021
• The Nitro (ASX:NTO) share price is down 20% in a month. Time to invest?
• 2 exciting mid cap ASX shares to buy
• Why the NEXTDC (ASX:NXT) share price is climbing higher today
• 5 fantastic ASX shares to buy today

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium and MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended MEGAPORT FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Viva Leisure Ltd (ASX: VVA) share price won’t be going anywhere today after the health club operator requested a trading halt.

Why is the Viva Leisure share price in a trading halt?

Viva Leisure requested a trading halt this morning while it undertakes a fully underwritten $30 million equity raising.

According to the release, the company is raising the funds via an institutional placement at a price of $2.90 per new share. This represents a 4.3% discount to its last close price of $3.03.

The proceeds will be used to pursue future growth opportunities. This includes the acquisition of health clubs and locations, the buyback of franchisee owned Plus Fitness centres, and greenfield rollouts.

In respect to acquisitions, management notes that it has a robust and deep pipeline of acquisition opportunities. These range from single club operators to large established health club groups.

These potential acquisitions will allow Viva Leisure to strengthen its presence in under-served locations and regions.

Management notes that there are strong acquisition synergies available for each opportunity and there is a preference for complementary overlap with existing locations.

The purchase price for these sites is expected to be equal to the EBITDA multiples paid for previous health club groups. This was approximately ~3 times EBITDA.

As for its franchise buybacks, management advised that it has identified buybacks within the range of $9 million to $10 million. These franchises relate to its recently completed acquisition of Australian Fitness Management, which is the master franchisor of the Plus Fitness brand.

Finally, in respect to its greenfield plans, the company expects to open 20+ locations between now and the end of FY 2021. It advised that 19 of these locations have been secured and leases executed.

Long term growth plans.

Looking ahead, Viva Leisure has a plan to add approximately 300 locations (including greenfield and acquisitions) by 2025. This results in a 2025 Target of 400+ locations.

Management also recognises the potential for additional locations nationwide, with the pipeline of franchisee owned Plus Fitness franchises representing a significant growth opportunity.

Trading update.

In addition to the equity raising, the company has provided a trading update this morning.

It revealed that since 30 June 2020, memberships have grown by 8,764. This means Viva Leisure now has 103,000 members. However, when including the 175,000 Plus Fitness network members, its total members grow to ~278,000.

As of 24 November 2020, there are 6,175 members on requested suspension, which is down from 15,000 in September.

Revenues in October 2020 were higher than pre-COVID shutdown levels, despite nearly 12,000 members still being suspended and excluding revenue from Victoria which only re-opened on 9 November 2020.

This led to its October 2020 revenue coming in at a run rate of ~$80.4 million.

More reading

• Top fundie, Wilson, names ASX shares to buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With interest rates at ultra-low levels and unlikely to be going higher for some time, dividend shares are unsurprisingly very popular with income investors.

If you’re looking to add some to your portfolio to help you through this low interest rate environment, then you might want to read on.

Two ASX dividend shares that are rated as buys are named below:

BHP Group Ltd (ASX: BHP)

BHP is one of the world’s largest mining companies with countless operations across the world. These operations are among the highest quality out there. They include BMA Australia, Nickel West, Olympic Dam, and Western Australia Iron Ore in Australia and Escondida and Spence in Chile.

Due to favourable commodity prices, BHP has been tipped to generate bumper free cash flow again in FY 2021. The good news for shareholders, is that the company’s strong balance sheet means it should be in a position to return a lot of this through dividends.

For example, Macquarie, which has an outperform rating and $44.00 price target on its shares, is forecasting a ~$2.79 per share fully franked dividend. Based on the current BHP share price, this would mean a sizeable 7.1% dividend yield over the next 12 months.

Coles Group Ltd (ASX: COL)

This leading supermarket operator has also been tipped to have a strong year in FY 2021. This is due to the strong sales growth it is delivering thanks to increased demand during the pandemic and rational competition in the industry.

Coles has started FY 2021 very strongly and delivered first quarter revenue growth ahead of expectations. It reported a 10.5% increase in total sales revenue over the prior corresponding period to $9.6 billion.

Goldman Sachs expects this strong form to continue and recently reiterated its buy rating and $20.50 price target. The broker also lifted its dividend forecast for FY 2021 to 64 cents per share. Based on the current Coles share price, this equates to a fully franked 3.5% dividend yield.

More reading

• Why Coles and this ASX dividend share are buys for income investors
• ASX 200 rises more than 1% on Tuesday
• 2 ASX dividend shares with generous 4%+ yields
• Monadelphous (ASX:MND) share price higher on BHP and Rio Tinto contract wins
• ASX 200 Weekly Wrap: ASX continues to climb, despite outage

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There is a definite event that will signal when to sell your shares, according to one fund manager.

Both Australian and US shares have been on a tear this year. First they hit historic highs in February, then after a COVID-19 crash in March the markets again rocketed upwards.

Nucleus Wealth head of investments Damien Klassen said that just before the pandemic hit, the debt cycle seemed to be nearing the end. That is, businesses and consumers were nearing a time when they would pay down their debts.

But the coronavirus put a rude stop to usual cycles, and lit the share markets on fire.

“Swift intervention by central banks and governments hit pause on the start of deleveraging,” he said in a memo to investors this week.

“They threw a lot of money at the economy… cushioning the blow for people who suffered from the shutdown. But a significant amount also ended up with people who didn’t suffer. Also, without travel, many more affluent people travelled less and consequently increased their saving and investment.”

Governments around the world also put in temporary protections to make evictions and bankruptcies more difficult. Banks provided pauses on loan repayments.

“The new rules prevented negative outcomes while encouraging positive ones. The stock market boomed.”

Limiting short term pain at the expense of the economy

Governments and central banks seemed to have told themselves zombies are okay. 

Zombie businesses are insolvent companies that should have died in normal times but are still trading recklessly thanks to temporary protections.

“Limit bankruptcies. Increase debt. Never raise interest rates again,” said Klassen.

“It doesn’t make for a healthy economy. But it limits short term pain, which appears to be the current goal of every politician.”

The goal for policymakers, it seems, is to stop a standard business cycle from happening.

“The economic plan is to try to get a debt-funded consumer boom going so that bankruptcy protection and consumer support can be removed.”

When to sell your shares

And this is why all investors should keep a close eye on how the government’s management of the economy is going, according to Klassen.

“Policy mistakes are what matters from here,” he said.

“Indications that a normal business cycle is occurring will be a sign to sell. Too much support and markets will grind higher.”

Klassen’s fund has had “minimal participation” in the share market recovery since March.

“And, to date, we have been wrong,” he said.

“We did identify the most likely reason to be wrong would be if governments would take ever more extreme steps to cancel capitalism. And that is what happened.”

A zombie future is what we have around the world.

“The end game seems to be a cohort of zombie consumers and businesses. Weighed down by debt burdens too massive to ever pay off, but supported by interest rates low enough to keep them from defaulting.”

More reading

• How I’d make a reliable passive income with cheap dividend stocks
• Better Buy: Starbucks vs. Netflix
• Fund king Ray Dalio ditches China for Coke (NYSE:KO)
• 2 ASX 50 shares to buy today
• 10 most searched shares in Australia

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The 2020 crash means that many investors are looking outside of the stock market to make a passive income. For example, they may buy property or hold bonds instead of buying cheap dividend stocks at a time when their future prospects are relatively uncertain.

However, dividend shares offer strong income prospects due in part to their high yields. They also have growth potential that could allow you to obtain a robust income in the long run when owning a diverse range of shares in a portfolio.

Dividend affordability for a reliable passive income

Perhaps the most important aspect of obtaining a reliable passive income is ensuring that a company’s dividends are affordable. There is very little to be gained in purchasing a stock that has a high yield, but that is unable to pay shareholders a slice of profit each year.

Analysing a company’s dividend affordability can be achieved by focusing on its dividend coverage ratio. This is calculated by dividing its net profit by dividends paid. A figure of one or above signifies that the company has headroom when making shareholder payouts. A dividend coverage ratio of less than one means that its dividends could be unaffordable unless net profit rises in the medium term.

Buying companies with dividend cover above one may be more important than ever at the present time for investors seeking to make a robust passive income. The economic outlook is very uncertain. Therefore, seeking a margin of safety when assessing a company’s dividend affordability may lead to a more reliable income outlook.

Financial strength and competitive position

Passive income investors may also wish to consider a company’s financial strength when assessing its investment potential. Companies with strong balance sheets that contain modest amounts of debt may be better placed to survive weaker operating conditions. They may also be less likely to cut dividends in response to weaker sales prospects, since they have the financial means to ride out a difficult economic period.

Similarly, companies with a competitive advantage over the peers may be able to produce higher profitability in the long run. For example, they may have a unique product or a cost advantage over rivals that translates into higher profit growth and a more robust dividend.

Diversification

A diverse portfolio of shares may offer a relatively resilient passive income. For example, a portfolio of 30 companies that operate in different sectors may produce a more stable income return than a portfolio of less than 10 businesses that all operate in similar industries.

Diversifying is cheaper and simpler than ever. As such, any investor who wishes to make a reliable income return from cheap dividend shares after the stock market crash can build a portfolio containing a broad range of companies without incurring large commission costs. Doing so could enhance your returns and provide greater stability in the long run.

More reading

• Better Buy: Starbucks vs. Netflix
• Fund king Ray Dalio ditches China for Coke (NYSE:KO)
• 2 ASX 50 shares to buy today
• 10 most searched shares in Australia
• ASX 200 expected to drop lower amid COVID-19 vaccine concerns

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Few companies have more of an impact on consumers’ daily lives than Starbucks (NASDAQ: SBUX) and Netflix (NASDAQ: NFLX). 

Starbucks built its coffee empire by persuading the general public that drinking its favorite caffeinated beverage should be a premium experience worth paying up for. 

Netflix saw the prominence of the internet as an opportunity to deliver high-quality media content to viewers when and how they want it, at an affordable monthly price. 

They’re both great businesses, but investors must weigh some key considerations before deciding which stock to buy.

The case for Starbucks 

Before the coronavirus pandemic significantly altered workers’ daily commutes and coffee consumption patterns, Starbucks had been steadily increasing its sales over the past few years. From fiscal year 2016 through fiscal year 2019, total revenue increased at a 7.5% compound annual growth rate, while net income expanded at an 8.5% clip. 

Given the stable nature of its business, Starbucks stock is only up 59% over the last five years, which actually lags the broader S&P 500. What Starbucks lacks in top- and bottom-line growth, however, it makes up for with management’s capital allocation policy. In fiscal 2019 alone, Starbucks repurchased more than $10 billion of its shares. This boosts earnings per share, something investors should appreciate. 

The company was hurt by stay-at-home orders implemented earlier this year. As corporate America shifted to a work-from-home model, office workers no longer frequented coffee shops on their way to work. Comparable-store sales declined 14% in fiscal year 2020 compared to the prior year. Starbucks has been demonstrating a recovery in these metrics, though, with fourth-quarter comps down only 3% in China. 

What hasn’t seemed to slow down is Starbucks’ propensity to open more stores. In the fiscal fourth quarter alone, the company added 480 new locations, bringing its total global store count to 32,660. Its main competitor in China, Luckin Coffee, admitted that it falsified financial records to boost reported sales in 2019, putting Starbucks in prime position to capture market share in this lucrative business. 

The case for Netflix 

As one of the leaders in the battle for our attention, Netflix has made investors rich throughout the years. Over the last decade, its stock is up 19-fold. This is due to impressive subscriber growth, which went from 20 million on Dec. 31, 2010, to 195 million today. 

With most of the world spending more time at home, Netflix benefited tremendously from a coronavirus-related boost during 2020. The company added nearly as many members in the first six months of this year as it did in all of 2019. 

But this remarkable growth has attracted fierce competition, especially from entertainment giant Walt Disney, whose Disney+ streaming service surpassed 73 million paying subscribers in its most recent quarter. This is still a long way off from where Netflix currently stands, but it’s a looming threat.  

This industry is not a winner-take-all market, though. Many consumers will pay for multiple services to satisfy their viewing needs. Netflix is aggressively investing in improving its offering to attract viewers, because it must achieve global scale as quickly as possible. Growth has slowed in the U.S., leading to Netflix’s intense focus on foreign markets. 

The final verdict 

I’ve laid out arguments for why both of these businesses warrant investment, and I’m an avid customer of both companies. However, one stock has the edge: Netflix. Even with a $215 billion market capitalization (nearly double that of Starbucks), I am a firm believer that Netflix still has plenty of room to run. 

As a digital-only offering, its business can theoretically serve everyone on the planet with a suitable internet connection. The number of broadband internet subscriptions worldwide continues climbing year after year, supporting Netflix’s aspirations. 

Even with a seemingly elevated valuation, I think Netflix is the better buy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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• I have too many tech shares: Do I sell, buy or hold?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix and Starbucks. The Motley Fool Australia has recommended Netflix and Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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