There was once a company akin to a 10-year-old on a triple espresso high, an energetic beast that wouldn’t rest. Its stock had superior risk-adjusted returns. The company became a global brand. It redefined what people do with their free time, giving them a place to meet and hang out somewhere other than at home or at work. And then one day, the company ran into a brick wall, as if that 10-year-old thought it could crash through said wall if it just put enough power behind its stride.

#-ad_banner-#There’s a great sight gag in the movie Shrek II, when a giant gingerbread man grabs the giant cup of coffee sitting atop a Starbucks (Nasdaq: SBUX). All the patrons scream and run out of the Starbucks they are in . . . and into the one across the street. Little did investors know that it was precisely this level of overexpansion that would turn into the aforementioned brick wall.

The premium coffee market has become saturated and Starbucks is in the process of closing 800 stores. McDonald’s is successfully challenging with the McCafe concept, backed with its marketing muscle. Case in point: a billboard outside Starbuck’s headquarters, with a picture of McDonald’s coffee next to a Starbuck’s coffee that reads, “Four bucks is dumb.” For McDonald’s customers, coffee is a cool new perk. What can Starbucks add to its menu that it hasn’t already tried?  Is there anything the company can do to caffeinate a resurgence? Yes, there are many things. Don’t count Starbuck’s out — ever.

The current answer comes in the form Starbucks instant coffee, Via. Investors should take note of just how bold a move this is.The $21 billion global instant coffee market is a great target from which to capture market share. Folger’s holds 30% of domstic share and Maxwell House another 19%. By making Via’s price point attractive to the instant coffee user, and by providing an instant version that most would say is superior to those long-standing brands, Starbucks has effectively declared war. 

Starbuck’s does not break down individual product sales, but one source reports that Via started in 12,000 retail outlets last fall, hit 15,000 in March, and will be in 37,000 by the end of June. If a product isn’t working, a company doesn’t expand it this aggressively. There’s also room for international expansion: There’s a $5 billion market in Japan ripe for exploitation and innovation, for example.

The company has finally embraced digital media and social networks as part of its marketing strategy as well. Finally, and significantly, the new product is not cannibalizing regular premium coffee sales. Instant coffee customers are a totally different type of customer.

Via’s performance is not just important in the short-term. Its rollout will be used as a template for other products Starbucks is sure to develop.

The question, however, is whether these new developments make Starbucks a piping hot buy.

Starbucks’ balance sheet is exceptionally strong. The company’s debt could be extinguished with just six months of free cash flow. The debt service is puny. The company has also netted almost $800 million in earnings during the past twelve months.

In both quantitative and qualitative evaluations, Starbucks comes off as one of the great global brands anyone should be excited to own. So is it a buy?  The answer is a qualified “yes.”

The stock is expensive. While great brands deserve PEG ratios over 1.00, Starbuck’s is significantly over that threshold. Given potential economic headwinds, it feels pricey at the moment. 

Also, the stock’s biggest growth days are behind it. The stock peaked well before the recession, at $40 back in late 2006, meaning it was already falling before the recession. The stock has had an incredible run off its V-shaped bottom, but I think investors have built too much optimism into the stock at this point. Furthermore, insiders are not terribly invested in the company’s outcome with only 3% ownership. It’s not a big deal, but it suggests that insider interests may not be aligned with shareholders.

Starbucks is still a world-class company, but waiting for a pullback before buying the stock wouldn’t be out of order, either.