Starbucks (SBUX) has always been a draw for investors, with the company long embodying the global brand recognition and agility needed to succeed. However, the last few years have been a significant challenge, with declining sales, operational inefficiencies, and persistent issues in the market leading to rather negative sentiment from the market. With a new leadership team making sweeping moves to get the firm back on track, many investors see the share price sitting at a delicate crossroads.
While I welcome this shake-up and company redirect, questions remain about whether the valuation is too optimistic, given the level of tangible returns expected over the coming years. I remain bearish on SBUX despite the promising turnaround taking shape.
Starbucks (SBUX) price history year-to-date
What’s New at Starbucks?
With over 40,000 stores worldwide, very few city dwellers fail to walk past a Starbucks. Brand recognition is not a problem for the company, and there are over 34 million active members in the Starbucks loyalty program in the U.S. alone. However, investors might be forgiven for not being as enthused about the company’s reach, which was pretty volatile last year, even with shares now up 17%.
I’d say the majority of the recovery can be attributed to the recent leadership changes. In March 2025, investors welcomed the arrival of Cathy Smith, former CFO of Nordstrom. With nearly 30 years of experience across various retail giants, a plan is in place to enhance financial discipline and improve overall operational efficiency.
This comes shortly after the arrival of CEO Brian Niccol, who joined in September 2024 after leading Chipotle. He quickly launched the “Back to Starbucks” initiative, which looked to simplify the operation, prioritize the customer experience, and build a reputation as the place to be for those wanting quality coffee and a welcoming environment.
Back to Starbucks in a Nutshell
Starbucks’ strategy is simple, but it has all the hallmarks of a company looking to return to its roots and rediscover what made it a success in the first place. This has several key objectives:
Simplify, Simplify, Simplify—To improve service, management plans to eliminate about 30% of the menu by the end of the year and focus on high-performing items for the future.
Reinvigorate branding: SBUX plans to double down on its coffee expertise and move away from discounting and promotional activities.
Store facelifts create a nicer ambiance for customers, with personalized customer interactions, better-quality mugs, and a general community feel.
Focus on efficiency: Starbucks is restructuring its internal operations, eliminating 1,100 corporate roles and improving decision-making and overall accountability.
Ad-hoc charges—Reverse the 2018 open-door policy and require all customers to make a purchase before using its facilities.
Most of these plans make total sense in an environment of shifting consumer behavior and uncertain economic conditions. Still, all eyes will be on the bottom line for the coming quarters. With both of its new senior hires having a strong track record, expectations for success are growing. However, how much this work will offset the challenging environment in markets such as China remains to be seen.
Investors Get Ahead of the Starbucks Strategy
While a well-thought-out strategy is in place, I fear markets have already priced in commercial success too early. With the shares now trading at 36x earnings, they’re already priced at a premium level. Any further decline in discretionary spending on premium coffee products due to inflation or any number of economic concerns could have investors questioning the bullish rationale. With several peers performing relatively better than SBUX, investors may balk at SBUX’s high multiples.
Financial indicators comparing Starbucks (SBUX) with other peers including Mcdonalds
I’ve also been concerned about how SBUX’s turnaround strategy may impact the enthusiasm of loyal customers. While operational changes may improve the company’s fundamentals, widespread workforce reductions could decrease service quality and impact team morale. If other coffee chains or general competitors can offer a similar product and a better experience, the niche that Starbucks has carved out since 1971 could easily be eroded.
Further Risks to the SBUX Recovery Story
In addition to being potentially overpriced in relation to its fundamentals, SBUX faces several tangible risks threatening its recovery aspirations. According to TipRanks’ risk analysis, the primary threats are macro and political.
Moreover, in its full 2024 fiscal report, SBUX reported that “activist shareholder actions are incurring added expenses, hindering the execution of its business strategy, and adversely impacting its stock price.” The caffeine giant also admitted that “our investments to transform and enhance the customer experience, including through technology, may not generate the expected results.”
Last but not least, SBUX reported that the company is “party to litigation or other legal proceedings that could adversely affect our business, results, operations, and reputation.” With admissions like that, investors are rightfully concerned about the company’s turnaround promises.
Is Starbucks a Buy, Sell, or Hold?
Wall Street analysts are generally optimistic about SBUX stock. The stock carries a Moderate Buy consensus rating based on 16 Buy, six Hold, and one Sell ratings over the past three months. SBUX’s average price target of $111.19 per share implies approximately 4.5% upside potential over the next twelve months.
My proprietary valuation model values SBUX at around $87 per share. While there could be some upside ahead, if management encounters issues with the strategy or if the market is disappointed by the results, long positions will likely unravel quickly.
I’m naturally cautious about these periods of transition within a company. With metrics such as store sales declining by 4% and operating margins falling by 12%, there are clearly some short-term bumps for management to work through. Investors will hardly be excited by a 22% decline in EPS in the last report, so I’d want management to indicate that the company’s turnaround is actually working before turning bullish.
SBUX is a Strong Brand with a Questionable Outlook
Starbucks will be around for some time, with coffee drinkers globally flocking to the famous logo daily. However, whether investors can be excited about the company in the near term is uncertain. I like what I see in the team’s turnaround strategy, but until the numbers start moving in the right direction, I cannot support SBUX with its elevated share price. For many, strong momentum and brand recognition will be enough of a moat to suggest an investment will work out through any near-term disruption. For cautious value investors like me, SBUX is not worth the commitment in such an uncertain period.
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