Starbucks Stock: Buy Or Bye?

Starbucks (SBUX) is a mature business with a powerful global brand and a massive footprint. It has nearly 40,000 locations worldwide and a market capitalisation of 84.465 billion as of July 9, 2024. The stock price has been falling, dropping by 2.44% on July 9, 2024, and it is expected to fall by 8.83% over the next 3 months. However, Starbucks is a stable company with strong revenue and comparable store sales growth, and it is targeting promising growth areas such as its loyalty program and expansion into drive-thru and delivery. So, should you invest in Starbucks right now?

Starbucks' stock price history

Starbucks Corporation (SBUX) is a roaster and retailer of specialty coffee, operating in nearly 40,000 locations worldwide. The company's share price has experienced a downward trend in recent times, falling by 2.44% on July 9, 2024, and declining for 7 consecutive days. As of July 9, 2024, the closing price of Starbucks stock was $72.75, a decrease from the 52-week high of $107.66. The all-time high closing price for Starbucks stock was $118.03 on July 26, 2021.

Despite the recent decline, there are several positive aspects to consider. Starbucks' sales gains have been strong, with comparable-store sales up 5% in the most recent quarter. The company is also expanding its store footprint, having added 550 restaurants last quarter, with a focus on international markets like China and rural areas in the US. This expansion contributed to an 8% overall revenue increase last quarter, totalling $9.4 billion.

However, it is important to note that Starbucks' growth has slowed, along with its restaurant and fast-food peers, due to cautious consumer spending after the price spikes in 2023. This dynamic will make it challenging to maintain sales growth, particularly as price increases slow down. Nevertheless, Starbucks is targeting promising growth areas, including its loyalty program, drive-thru services, and delivery options.

In summary, while Starbucks stock has experienced a recent downturn, the company continues to pursue expansion and sales growth through various initiatives. Whether to invest depends on your risk appetite and time horizon, but it is always recommended to conduct thorough research and consult with a financial advisor before making any investment decisions.

Starbucks' growth prospects

Starbucks's growth prospects are mixed. On the one hand, the company has a mature business model and has already undergone its major expansion phases, with nearly 40,000 locations worldwide. This has likely hampered its growth rates and makes more rapid growth difficult to achieve.

However, the specialty coffee market is expected to grow at a compound annual rate of 11% through 2030, according to Grand View Research. Starbucks, with its global presence, is well-positioned to capitalise on this trend. The company's CEO, Laxman Narasimhan, has set a target of 55,000 locations by 2030.

Starbucks is also targeting promising growth areas, such as its loyalty program, drive-thru, and delivery services, which could help it expand further. The company is also focusing on international markets like China and India, and is adding more rural locations in the US. These initiatives helped overall revenue rise 8% last quarter to $9.4 billion.

Starbucks's growth strategy also includes menu innovations, such as leveraging the demand for its all-day breakfast menu, which saw a 20% increase in sales during the first nine months of 2023.

Despite these positive signs, Starbucks faces headwinds, including rising costs related to labour, commodities, and supply chain issues. There are also concerns about consumer spending due to high inflation and cautious spending behaviour after price spikes in 2023.

In summary, while Starbucks's large size may hinder its growth rates, the company is pursuing strategic initiatives and targeting new markets to boost growth. The overall prospects for the specialty coffee market remain positive, and Starbucks's global presence positions it well to benefit from this trend.

Starbucks' financial performance

Starbucks' stock price fell by 2.44% on 9 July 2024, from $74.57 to $72.75. The stock has fallen for seven consecutive days, and the price has dropped in nine of the last ten days, resulting in an overall decline of 8.75% during this period. The stock is currently on a downward trajectory and is predicted to fall by 8.83% over the next three months, with an expected price range of $61.24 to $72.81.

Despite the recent decline, there are several positive aspects to Starbucks' financial performance. Comparable store sales increased by 5% in the most recent quarter, matching the gains of competitor Dutch Bros. This sales growth is driven by a combination of rising customer traffic and increased average spending, setting Starbucks apart from competitors like McDonald's, which has been experiencing declining traffic.

Starbucks is also expanding its store footprint, having added 550 restaurants last quarter, with a focus on international markets like China and rural areas in the US. This expansion contributed to an 8% increase in overall revenue last quarter, totalling $9.4 billion. However, it's worth noting that Starbucks' growth has slowed recently, partly due to cautious consumer spending after the price spikes in 2023.

Starbucks' earnings prospects look strong, with an operating profit margin approaching 16% of sales, even as revenue growth slows. This indicates that the company can achieve record profits once the next cyclical upturn occurs. Starbucks' CFO, Rachel Ruggeri, attributed this performance to multiple paths to earnings growth, including innovative drink releases, the loyalty program, and a push into drive-thru and delivery services.

In summary, while Starbucks' stock price has been falling recently, the company's financial performance shows positive signs, including sales growth, expansion, and strong earnings prospects. However, the stock is expected to continue falling in the short term, and cautious consumer spending may impact its growth.

Analyst recommendations

However, one source suggests that Starbucks stock is a "sell" due to its wide and falling trend in the short term, with the stock expected to fall by 8.83% in the next 3 months. The stock is also facing headwinds in the form of rising costs related to labour, commodities, and supply chain issues, as well as concerns about consumer spending due to high inflation.

Another source suggests that investors should probably treat Starbucks stock as a "hold". While the company's massive global footprint and powerful brand bring stability, and its revenue and comparable store sales growth show that it holds up well against intense competition, there are concerns about its ability to address the rising competitive threat from peers and its underperformance compared to the S&P 500.

Overall, while analyst recommendations vary, investors should carefully consider the risks and potential rewards before investing in Starbucks stock.

Starbucks' strategic initiatives

Starbucks has implemented several strategic initiatives to accelerate growth and enhance long-term shareholder value. Here are the key initiatives:

International Expansion:

Starbucks aims to accelerate growth in its targeted long-term growth markets: the United States and China. In the third quarter of 2019, the company opened 442 net new stores, with one-third of them in China. The company is also expanding its global reach through the Global Coffee Alliance with Nestlé, adding an opportunity for another 5 million points of presence in 189 countries.

Store Portfolio Optimization:

Starbucks is optimizing its store portfolio by shifting new company-operated store growth to underpenetrated markets, slowing licensed store growth, and increasing the closure of underperforming stores in densely penetrated markets. This strategy will result in a slightly lower growth rate in net new company-operated stores in the short term but will help sharpen the focus on increasing shareholder returns.

Digital Innovation and Customer Engagement:

Starbucks is actively expanding its digital relationships with customers. They have added 5 million new digitally registered customers and 2 million active Starbucks Rewards members year-over-year. The company expects its digital initiatives, such as a redesigned rewards program, to contribute to comp growth in the United States.

Product Innovation:

Starbucks is committed to product innovation, focusing on core beverages while leveraging the growing tea and refreshment category. They are also expanding plant-based options and migrating toward a more environmentally friendly menu. Additionally, they are introducing new products in partnership with Nestlé, such as coffee creamers and Nespresso pods.

Enhancing Customer Experience:

The company is working to enhance the in-store experience and expand its delivery services. Starbucks has partnered with Uber Eats to expand delivery in the United States, catering to customers' increasing demand for convenience.

Resource-Positive Future:

Starbucks has committed to a resource-positive future with science-based targets for carbon, water, and waste reduction by 2030. They aim to become resource positive by storing more carbon than they emit, eliminating waste, and providing more clean freshwater than they use. This commitment includes investing in innovative agricultural practices, reforestation, water replenishment, and better waste management practices.

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