3 Things You Need to Know About Starbucks Before You Buy the Stock

Starbucks (NASDAQ: SBUX) hasn't been energizing investors' portfolios in recent years. After hitting a peak in July 2021, shares dipped 43% in the 11 months that followed. It has been a volatile journey since then as the chain has gone through a period of softer demand, leadership changes, and a strategic overhaul.

Even after a surge that started last summer, the restaurant stock is still trading 15% off its all-time high. That might make the shares enticing to investors who are looking to put some money to work.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Here are three things you need to know about Starbucks before you think about adding it to your portfolio.

1. Its turnaround efforts are just beginning

Perhaps no metric matters more to a retail-based operation such as Starbucks than same-store sales. A steadily rising figure indicates improving demand over time at existing locations. Starbucks has struggled in this regard recently; it just reported its fourth straight quarter of declining same-store sales. That weakness has been prevalent in both the U.S. and China, Starbucks' top two markets.

Brian Niccol, formerly CEO of Chipotle Mexican Grill, was brought on board as the new CEO of Starbucks in September to turn things around. His primary areas of focus so far have been on increasing foot traffic at Starbucks locations while also improving the barista and customer experiences. From an operational perspective, Niccol wants to drive corporate efficiencies with staff cuts.

When Starbucks reported results for its fiscal 2025 first quarter (which ended Dec. 29), Niccol sounded optimistic about the early progress on this "Back to Starbucks" strategy. "We've seen a positive response," he said on the earnings call.

2. Its moat is wide

If you're considering making an investment in Starbucks, it's worth understanding what makes the business special. In particular, the company possesses an economic moat that supports its industry position. Yes, it has been dealing with challenges recently, but the business has been relevant for decades, and that has value.

Starbucks' most important asset has got to be the brand. According to consultancy Interbrand, it's the second-most-valuable restaurant brand on the face of the planet, behind only McDonald's. By positioning itself as a premium offering that customers resonate with, providing high-quality coffee, and focusing on compelling store layouts and a top-notch digital platform, Starbucks can maintain its strong mindshare.

Piggybacking off of the previous topic, another of Niccol's core objectives is to boost Starbucks' image as an important place in communities -- somewhere that people want to be. He's working with a favorable hand.

I also think Starbucks' scale provides a durable competitive advantage. It spreads out its marketing expenditures and technology investments over a huge store base. The long-term success of the company likely means Starbucks is a tenant of choice for retail property owners, giving it easier access to prime real estate when opening new stores.

Additionally, because it purchases high volumes of key inputs like equipment, milk, and paper and packaging products, it probably has negotiating leverage with suppliers.

3. It has more growth potential than you might expect

As of Dec. 29, Starbucks had 40,576 locations worldwide, making it one of the largest restaurant concepts. However, it still has noteworthy growth potential.

"In the U.S. alone, we still see the potential to double our store count while improving the overall health of our portfolio," Niccol said on the latest earnings call. Expansion isn't necessarily at the top of the agenda in the near term, as the focus is on making operational improvements. But the long-term outlook should give investors optimism.

China is another major growth opportunity. Starbucks has 7,685 locations in the country, far fewer than in the U.S., despite it having a middle class estimated to be 700 million people.

Historically, the business has been able to successfully expand its store base. Given the possibility that it could have a much larger physical footprint down the line, there is a clear path toward Starbucks generating much higher revenues and earnings.

Should you invest $1,000 in Starbucks right now?

Before you buy stock in Starbucks, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Starbucks wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $735,852!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of January 27, 2025

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.