Now Is Not The Time To Buy Starbucks Stock
Note: Starbucks FY’24 ended on September 29, 2024
Defying broader market trends, Starbucks stock (NASDAQ: SBUX) has shown resilience in 2025, with a 9% stock price gain amidst a 4% decline in the S&P 500. Although Q1 (December) earnings were initially underwhelming, with same-store sales slipping 4% due to a 6% decline in store traffic, a more nuanced look revealed promising signs of recovery. Notably, same-store transactions showed a 200 basis point improvement year-over-year (y-o-y), while North American revenue rose 6% y-o-y. Starbucks is undergoing a transformative turnaround under CEO Brian Niccol’s leadership, focused on revitalizing its brand, optimizing operations, and driving sustainable growth. This strategic overhaul, coupled with the promising “Back to Starbucks” plan, warrants a closer look at the company’s prospects amidst a volatile market sell-off triggered by President Trump’s tariff confirmation.
Image by Adam Evertsson from Pixabay
How does Starbucks’ valuation look vs. the S&P 500?
Going by what you pay per dollar of sales or profit, SBUX stock looks slightly expensive compared to the broader market.
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• Starbucks has a price-to-sales (P/S) ratio of 3.6 vs. a figure of 3.2 for the S&P 500
• Additionally, the company’s price-to-operating income (P/EBIT) ratio is 27.6 compared to 24.3 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 22.7 vs. the benchmark’s 24.3
How have Starbucks’ revenues grown over recent years?
Starbucks’ Revenues have grown marginally over recent years.
• Starbucks has seen its top line grow at an average rate of 6.1% over the last 3 years (vs. increase of 6.3% for S&P 500)
• Its revenues have decreased 1.5% from $37 Bil to $36 Bil in the last 12 months (vs. growth of 5.2% for S&P 500)
• Also, its quarterly revenues declined 0.3% to $9.4 Bil in the most recent quarter from $9.4 Bil a year ago (vs. 5.0% improvement for S&P 500)
How profitable is Starbucks?
Starbucks’ profit margins are around the median level for companies in the Trefis coverage universe.
• Starbucks’ Operating Income over the last four quarters was $4.8 Bil, which represents a moderate Operating Margin of 13.1% (vs. 13.0% for S&P 500)
• Starbucks’ Operating Cash Flow (OCF) over this period was $5.8 Bil, pointing to a moderate OCF-to-Sales Ratio of 16.0% (vs. 15.7% for S&P 500)
Does Starbucks look financially stable?
Starbucks’ balance sheet looks strong.
• Starbucks’ Debt figure was $26 Bil at the end of the most recent quarter, while its market capitalization is $111 Bil (as of 3/14/2025). This implies a strong Debt-to-Equity Ratio of 19.7% (vs. 19.0% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $4.0 Bil of the $32 Bil in Total Assets for Starbucks. This yields a moderate Cash-to-Assets Ratio of 12.4% (vs. 14.8% for S&P 500)
How resilient is SBUX stock during a downturn?
SBUX stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• SBUX stock fell 38.4% from a high of $116.68 on 3 January 2022 to $71.87 on 17 June 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $115.81 on 28 Feb 2025 and currently trades at around $99
Covid Pandemic (2020)
• SBUX stock fell 38.8% from a high of $92.03 on 24 January 2020 to $56.33 on 18 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 12 October 2020
Global Financial Crisis (2008)
• SBUX stock fell 67.8% from a high of $13.39 on 9 October 2007 to $4.31 on 14 November 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 22 April 2010
Putting all the pieces together: What it means for SBUX stock
In summary, Starbucks’ performance across the parameters detailed above is as follows:
• Growth: Neutral
• Profitability: Neutral
• Financial Stability: Strong
• Downturn Resilience: Very Weak
• Overall: Neutral
But keeping in mind its high valuation, we think that the stock is unattractive, which supports our conclusion that SBUX is a bad stock to buy.
The rich valuation of SBUX stock limits its upside potential in the near-to-mid term. While you would do well to avoid SBUX stock for now, you could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
| Returns | Mar 2025 MTD [1] |
2025 YTD [1] |
2017-25 Total [2] |
| SBUX Return | -14% | 9% | 113% |
| S&P 500 Return | -5% | -4% | 153% |
| Trefis Reinforced Value Portfolio | -6% | -8% | 552% |
[1] Returns as of 3/18/2025
[2] Cumulative total returns since the end of 2016
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