Should You Buy Starbucks Stock Right Now?

Like caffeine intake's impact on the body throughout the day, Starbucks (NASDAQ: SBUX) has taken its investors on an up-and-down journey in the past 12 months. It has experienced double-digit daily price swings multiple times. And after soaring 32% from late December to their 52-week high in early March, shares have tanked 14% (as of March 27).

This business remains a leader in the global retail coffee market. But does the consumer discretionary stock deserve a spot in your portfolio? Here's what investors need to know about Starbucks before making an informed decision.

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Leveraging the Starbucks brand

Starbucks has become a well-known brand in the restaurant space. It has figured out a formula for selling what is essentially a commodity at a premium price tag, giving consumers a top-notch experience. Credit goes to the Starbucks moniker. In fact, the brand is what makes up the economic moat.

The fact that the company found success outside of its home market, the U.S., also points to the brand's strength. Being able to post positive same-store sales over the long term, while also boasting an average gross margin of 27.8% in the past decade, highlight how valuable the brand is as well.

Starbucks' brand, which is undeniably its most important competitive edge, provides the leadership team with a solid foundation upon which to build. CEO Brian Niccol, who started in September, has implemented a Back to Starbucks plan to get the business on track.

Some notable actions already taken to improve the customer experience were simplifying the menu by 30%, providing ceramic mugs to in-store customers, bringing back the condiment bar, investing in employees, and upgrading order processing to reduce wait times to four minutes max. At the end of the day, it's all about making Starbucks a top consumer choice again.

"Our Back to Starbucks strategy has already driven early progress, including gradual top-line improvement, giving us confidence that we're focused on the right priorities," outgoing CFO Rachel Ruggeri said on the fiscal first-quarter 2025 earnings call.

Growth opportunities

Starbucks generated $38 billion in annualized revenue in Q1 2025 (ended Dec. 29, 2024). And it has almost 41,000 stores scattered across the globe. These impressive numbers point to the company's huge scale and ubiquity. However, there are still opportunities to grow over the long term.

One obvious strategy is to open more stores. The previous leadership team set a goal to have 55,000 stores open by 2030. While this explicit target might no longer be a priority, Starbucks has expansion potential domestically and abroad. Introducing smaller retail footprints, like pick-up or drive-thru-only locations, can help the company penetrate markets.

Starbucks' loyalty members in the U.S. increased 1% year over year to 34.6 million in the latest fiscal quarter. These consumers spend more and visit stores more frequently. Boosting digital adoption in this manner can support higher sales and loyalty over time.

Menu innovation, to drive greater customer interest, is something Starbucks has always focused on. This practice helps maintain freshness and keeps foot traffic up.

Paying a premium

Of course, the competitive nature of the industry won't make things easy for Starbucks. There are virtually no barriers to entry for new coffee shops. And customers can choose to spend their money wherever they want when it comes to getting a cup of joe. This adds an important risk factor to the equation.

Buying Starbucks stock right now would be an enticing proposition if the valuation were at a bargain level. However, this just isn't the case. Shares trade at a price-to-earnings ratio of 31.9. This is for a business that has reported declining same-store sales in four straight fiscal quarters. The company's challenges don't justify paying the current valuation to buy the stock.

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*Stock Advisor returns as of March 24, 2025

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.