07-19-2014, 10:32 PM
To be honest, I've never paid much attention to margins, gross or net. There's a wide stretch between gross profit and net profit that a company can waste money on.
It seems to be true that higher margin businesses tend to draw more competitors to the market but it depends on how those competitors want to operate. Using your example, if someone came to market with a high quality coffee business in relaxing environments but wanted to compete on price, I believe SBUX may have a tougher time of it. Fortunately, most of its competitors (the real ones --not McDonalds -- which I believe are regional at best) have decided to just fill in the holes of SBUX presence and enjoy similar margins.
I prefer to focus on sales & earnings results along with the dividend record. As long as the company can give me a acceptable return, I'm happy.
It seems to be true that higher margin businesses tend to draw more competitors to the market but it depends on how those competitors want to operate. Using your example, if someone came to market with a high quality coffee business in relaxing environments but wanted to compete on price, I believe SBUX may have a tougher time of it. Fortunately, most of its competitors (the real ones --not McDonalds -- which I believe are regional at best) have decided to just fill in the holes of SBUX presence and enjoy similar margins.
I prefer to focus on sales & earnings results along with the dividend record. As long as the company can give me a acceptable return, I'm happy.