Is it Time to Buy Starbucks Stock?

PUBLISHED Aug 11, 2024, 10:14:51 PM        SHARE

img
imgNoah Brody

Is it Time to Buy Starbucks Stock?

Company Overview

Starbucks Corporation is an American chain of coffeehouses founded in Seattle, Washington in 1971. They are, by an enormous amount, the largest coffeehouse chain in the country both in terms of revenue as well as by market cap. Starbucks has continued to expand their locations in order to keep growing their revenue, increasing from approximately 35 thousand locations in 2022 to now having the second most locations of any restaurant chain in the world, operating over 38 thousand locations, only trailing McDonalds.

Business Model

Starbucks has a very simple and very straightforward business model, especially when it comes to their customer base. They have positioned themselves as an accessible provider of high-quality coffee, and have not segmented their customer base. Anyone can drink coffee, and Starbucks tries to cater to anybody who may want to try their product.

When it comes to the real revenue generating portion of Starbucks, they have created retail locations to sell their own product, while also having a wholesale arm that allows customers to buy their products directly, rather than needing to go to a Starbucks location. While the retail locations make up the majority of Starbucks’ revenue, approximately 82%, while licensed stores, partner locations allowed to sell Starbucks products, as well as sales of pre-packaged products make up the remainder.

By having licensed partner stores as well as pre-packaged goods to sell, Starbucks can continue to expand into other markets without assuming the full risk and cost of operating a retail location. Their retail locations generate approximately $1.2 million per year, and this is a large part of why Starbucks’ expansion globally is such a key part of their strategy,

Recent Performance

Starbucks has had several very strong performances financially recently, especially in terms of revenue. Their Q2 ending in March 2024 was their first decrease in quarterly revenue in nearly two years, though they are expected to rebound. Revenue for Starbucks has increased annually every year since at least 2009, and recent performance indicates that even though they had a down quarter, they can continue their growth trajectory. They did increase 6% in Q3 compared to Q2, the first signs that they are recovering from that down quarter.

Stock Performance and Outlook

Starbucks stock has struggled significantly, and the time frame does not particularly help find out when improvement may be coming. With a current price of $75.09, they are approaching their 52 week low of $71.55. Since the down earnings report in May of this year, Starbucks stock has dropped considerably, falling from $88.49 to $74.44 the next day. When comparing over the past full year, the stock is down over 25%, and is down 22.02% over the past 5 years. The question is why is Starbucks stock struggling?

Part of this can be attributed to the struggles in Q2. Falling well short of projections saw a single-day loss of over 15% of the stock price, which is certainly not good news, and this alone has been a major part of the struggles, but economic factors are certainly playing their part. Customers are price conscious right now as the economy continues to struggle and as a discretionary stock, price conscious consumers may stop shopping at Starbucks and instead seek a cheaper alternative.

Another factor that may be hurting Starbucks is the intrinsic value. GuruFocus, who I have written about in many of my other articles, has a formula to help determine intrinsic value based on free-cash-flow, and that can indicate whether a stock is overvalued or not. Their current intrinsic value of $32.29 for Starbucks does indicate that the stock may be overvalued, but the price-to-projected-FCF range is actually better than it has been on average over the past 10 years, so there may actually still be some value from this stock. The average price target for Starbucks is $87.42, which also seems to indicate that the market believes there are brighter times ahead for Starbucks, even after there recent struggles.

Conclusions

While Starbucks is one of the largest restaurant chains in the world, the painting of their stock is murky right now. While their revenue growth has been strong, the stock price has faltered in recent years, and has become a concern for some investors. I believe that now the price has fallen to a point where it actually has become an intriguing buy opportunity for investors again, with recent performance improvements seemingly not factored into the stock price. I believe that it is a buy opportunity at the current price, but also think caution is necessary due to the recent volatility in their price,

SBUX, Buy

Starbucks Corp.
Return: 24.85%

SBUX, Buy

Return: 24.85%


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
Should You Buy Coca-Cola or PepsiCo Stock?
Image

Both beverage giants have long histories as long-term investments, but which is the better buy right now?

Is it Worth it to Buy Nike Stock?
Image

Nike is the largest sneaker company in the world, and one of the largest clothing companies. Is the time right to buy Nike stock?

Should you buy McDonald's Stock?
Image

McDonald's is the world's largest restaurant chain, but should you invest?

Example Assessments of the Top Telecommunication Stocks
Image

A disciplined approach to assessing telecom stocks will improve investment profitability. Using a standard process to investing in telecoms, we’ll assess the top telecom stocks and see how well they compare.

Is it Good to Invest in Telecommunication Stocks?
Image

Investing in the telecom sector can be a promising opportunity due to the relentless demand for connectivity and the ongoing advancements in technology. The industry is expected to benefit from the rollout of 5G, increased adoption of smart home devices, and the expansion of fiber networks.

Which Companies Produce the Most Raw Materials?
Image

The most consumed raw material in the world is sand and gravel. These materials are essential components for the construction industry, used in the production of concrete, roads, and buildings

Investing in Metal Stocks
Image

Metal stocks represent shares in companies engaged in the exploration, production, processing, and distribution of various metals, including steel, aluminum, copper, and zinc. These companies may operate mines, smelters, refineries, and other facilities essential for metal extraction and processing. Investing in metal stocks offers exposure to the performance of the metal industry.

Is the Material Sector a Good Investment?
Image

While the sector faces challenges such as economic cycles, commodity price volatility, and global geopolitical tensions, it also offers significant opportunities driven by technological advancements and increasing demand for key materials like lithium.

Should you Buy Tesla Stock?
Image

Tesla has been at the forefront of the EV market for years, and is one of the largest companies in the world, but is their stock worth buying?

Is AMD or NVIDIA a Better Buy?
Image

AMD and NVIDIA are the two major players in the world graphics card market, but which of the two is a better buy opportunity for investors?

Is Amazon Stock a Buy?
Image

Amazon is one of the world's largest companies, but should you buy?

What are Consumer Discretionary Stocks?
Image

What are consumer discretionary stocks, and should you invest in them?

What are Building Material Stocks?
Image

Building material companies are involved in the production and distribution of materials used in construction and infrastructure projects. These materials include concrete, cement, steel, lumber, and other essential components for building structures.

The Cyclical Nature of Material Stocks
Image

During periods of economic growth, industries such as construction, manufacturing, and technology expand, leading to increased demand for raw materials like metals, chemicals, and construction materials. Conversely, during economic downturns, industrial activities slow down, leading to a decrease in demand for raw materials.

What are Advanced Material Companies?
Image

Advanced material companies focus on the development and production of complex and technology driven materials. These materials, as opposed to traditional materials, help to drive technical innovation and improve the cost and efficiency of existing products.

What is the best ETF for materials?
Image

Material Exchange Traded Funds (ETFs) are investment funds that provide exposure to companies in the materials sector.

Should you Buy Pfizer Stock?
Image

Pfizer was a major player in the development of the Covid-19 vaccines, but are they a good investment now?

Which is the Better Buy? Gilead Sciences vs Bristol-Myers Squibb
Image

Gilead Sciences and Bristol-Myers Squibb are both major pharmaceutical companies, but which of the two is a better opportunity?

Is Eli Lilly Co. a Buy?
Image

They are one of the largest healthcare companies in the world, but should you buy Eli Lilly Co.?

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Tom Hamilton
user_profile
Wise Intelligent
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey