Does Starbucks’ Stock Have More Room To Run?

[Note: Starbucks’ fiscal year 2022 ended October 2, 2022]

After a 31% growth over the last six months, at the current price of around $107 per share, we believe Starbucks stock (NASDAQ: SBUX), the world’s leading roaster, marketer, and retailer of specialty coffee worldwide, is appropriately priced. SBUX stock has increased from around $82 to $107 in the last six months, largely outperforming the broader indices, with the S&P coming in flat over the same period. Starbucks has a clear advantage with regard to name recognition. The company’s strength in digital orders helped it rebound quickly from the pandemic setback. That said, the coffee business is lucrative as it lends itself to repeat purchases, which puts Starbucks in a strong position. However, we expect the company’s stock to remain at current levels in the near to medium term.

Starbucks saw lower earnings despite an 11% year-over-year (y-o-y) rise in revenue to $32 billion. Higher expenses like labor and commodities and the restrictions in China have resulted in operating margins reaching 14.3% in FY’22 down from 16.8% in FY’21. Consequently, its GAAP EPS was down 20% y-o-y. It should be noted that transactions at Chinese Starbucks fell a whopping 22% y-o-y in FY’22 due to ongoing pandemic restrictions in the country, where the chain has more than 6,000 locations. But strong growth in the restaurant chain’s core U.S. market has helped to offset Covid-related declines in China.

Starbucks furthered its relentless global expansion. The company opened 763 net new stores during the fourth quarter of 2022, bringing its total store count to over 35,700 locations worldwide. The company believes the business will have 55,000 locations worldwide by 2030. The important question here is can the brand continue to expand since it is already ubiquitous? The coffee giant’s management could likely be overly optimistic about its long-term expansion prospects.

It is helpful to see how its peers stack up. Check out how Starbucks Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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[1] Month-to-date and year-to-date as of 1/25/2023
[2] Cumulative total returns since the end of 2016