Is Starbucks (SBUX) Pricing Make Sense After Years Of Subdued Share Returns

• If you are wondering whether Starbucks shares offer good value at current levels, it helps to separate the brand story from what the numbers are actually saying about the stock.
• The share price closed at US$86.56, with returns of 1.5% over the last 7 days, 1.7% over the last 30 days, 3.1% year to date and a 4.3% decline over the last year, alongside 12.2% and 5.8% declines over the last 3 and 5 years.
• Recent coverage has focused on how Starbucks is managing its global store footprint, customer traffic patterns and changing consumer preferences. All of these factors help frame how investors think about growth potential and risks in the share price. This mix of headlines and sentiment gives useful context when you look at how the current market price lines up with different valuation checks.
• On Simply Wall St's 6 point valuation checklist, Starbucks currently scores 0 out of 6. In the sections ahead we will walk through what that means across several common valuation methods, then finish by looking at a more complete way to think about valuation that brings those pieces together.

Starbucks scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Starbucks Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes projections of a company’s future cash flows and discounts them back to today using a required rate of return. The goal is to estimate what those future cash flows are worth in today’s dollars.

For Starbucks, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flows available to shareholders. The latest twelve month free cash flow is about $2.23b. Analysts provide explicit forecasts for several years, and Simply Wall St extrapolates further, with a projection of around $4.14b in free cash flow in 2035, all still in $.

When all those projected cash flows are discounted back and added together, the DCF model arrives at an estimated intrinsic value of about $48.26 per share. Compared with the recent share price of $86.56, this implies the stock is around 79.4% overvalued on this metric.

On this cash flow model alone, the current price appears high relative to the underlying projections.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Starbucks may be overvalued by 79.4%. Discover 877 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Starbucks.

Approach 2: Starbucks Price vs Earnings

For a profitable company like Starbucks, the P/E ratio is a useful way to gauge what investors are currently willing to pay for each dollar of earnings. It quickly links the share price to the underlying profits, which is often how the market frames value for established consumer brands.

What counts as a “normal” P/E will usually reflect the growth that investors expect and the risks they see. Higher growth or lower perceived risk can justify a higher multiple. Slower growth or higher risk can mean a lower one makes more sense.

Starbucks currently trades on a P/E of 53.02x. That sits above the Hospitality industry average of 21.82x and also above the peer group average of 50.09x. Simply Wall St’s Fair Ratio for Starbucks is 38.88x. This Fair Ratio is a proprietary estimate of what the P/E might be given factors like earnings growth, profit margins, industry, market cap and specific risks.

Comparing to the Fair Ratio can be more informative than looking only at peers or the industry, because it adjusts for Starbucks’ own profile rather than assuming it should trade in line with broad averages. With the current P/E of 53.02x sitting well above the Fair Ratio of 38.88x, the shares screen as expensive on this check.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1459 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Starbucks Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page that lets you spell out your story for Starbucks, translate that story into revenue, earnings and margin assumptions, connect those to a forecast and fair value, and then compare that fair value to today’s price. All of this is updated as new news or earnings arrive. You might, for example, side with a more cautious Starbucks Narrative that points to fair value around US$94 per share, or a more optimistic view closer to US$115, and then decide whether the current market price gives you enough margin of safety for your own decision to buy, hold or sell.

Do you think there's more to the story for Starbucks? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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