Exploring the Current Challenges and Bright Spots of Starbucks Stock

Starbucks: A Detailed Analysis

History has shown that Starbucks doesn't typically fall much further than it already has. Coffee chain Starbucks (NASDAQ: SBUX) has proven to be a remarkably lucrative investment over its lifetime. Had you invested $10,000 at its initial public offering, you'd have over $3.4 million today. But even winning stocks fall into slumps, and Starbucks is currently in one, down roughly 28% from its former high.

The Core Business is Brilliant

Coffee is a cultural staple worldwide, allowing Starbucks to grow from a regional coffee chain into a global juggernaut with over 38,000 stores. It's a brilliant business model. Coffee is a profitable beverage to produce and sell, and Starbucks has thrived by building fantastic brand loyalty.

The company's loyalty program has a whopping 34.3 million Americans enrolled, with $3.6 billion on their Starbucks cards. Those funds are essentially an interest-free loan to the business, which management uses to open new stores or repurchase shares. That's helped drive years of solid revenue and earnings growth with little disruption along the way (aside from the pandemic).

Working through Adversity

Starbucks has also worked through some adversity. Shares were down nearly 40% from their highs in 2022, the stock's most significant decline since the late 2000s. The company had struggled to find a suitable replacement for former CEO and founder Howard Schultz. Ultimately, the company hired Laxman Narasimhan, formerly Chief Commercial Officer at PepsiCo. He has been the CEO of Starbucks for less than a year.

Should You Invest in Starbucks?

Fundamentally speaking, the stock is attractively valued today as well. Shares trade at a forward price-to-earnings (P/E) ratio of 22; analysts believe the company's earnings will compound by more than 15% annually over the next three to five years. Shares are deep into on-sale territory, and there's no indication that Starbucks can't keep delivering on the formula that's made millionaires out of some long-term investors.