A Fresh Look at Starbucks (SBUX) Valuation Following Historic Labor Strikes and Missed Earnings

Starbucks is in the spotlight as it contends with its largest labor strike ever, now affecting more than 120 stores. Contract talks with unionized workers have stalled, raising fresh uncertainties for the coffee giant during the busy holiday period.

See our latest analysis for Starbucks.

This strike lands just as Starbucks has weathered a turbulent year, with new deals for its China business, C-suite shakeups, and margin pressures making headlines. After another dip following Q4 results, the stock’s 1-year total shareholder return is down 12.7%, and momentum has not picked up despite a modest 1-month share price return. All things considered, investors are still waiting for a real sign of recovery amid ongoing uncertainty and recent operational challenges.

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With labor unrest weighing on day-to-day operations and margins under pressure even as revenue rises, investors may wonder if Starbucks is trading at a discount to its true value or if the market is already anticipating its next big growth play.

Most Popular Narrative: 7.4% Undervalued

Starbucks is currently trading at $87.11, while the most widely followed narrative calculates a fair value of $94.10. According to this view, the market is not fully pricing in the company’s anticipated improvements, even as operational hurdles persist. Let’s see which assumptions are supporting this potential upside.

The rollout of the Green Apron service model, focusing on labor rather than equipment, is expected to improve throughput and reduce service times. This may lead to increased transaction growth, which could impact revenue and margins. Implementing a more aggressive marketing and menu innovation strategy, including new product launches and improved price transparency through the Starbucks app, aims to drive higher engagement and demand, potentially affecting revenue and earnings.

Read the complete narrative.

Want to know which bold strategies are behind this valuation? The narrative highlights a significant shift in how Starbucks may drive customer traffic, boost efficiency, and unlock new market demand. There is a key financial lever you might not expect—curious what it is?

Result: Fair Value of $94.10 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, slower sales growth and persistent margin pressures remain. Any stumble in key recovery initiatives could undermine the bullish outlook for Starbucks.

Find out about the key risks to this Starbucks narrative.

Another View: What Do Earnings Multiples Suggest?

While the prevailing narrative points to Starbucks as undervalued, looking at its price-to-earnings ratio tells a different story. Starbucks trades at 53.4x earnings, well above the industry average of 21.3x and even peers at 46.1x. The fair ratio, estimated at 34.5x, also trails behind. This gap means market expectations for future growth are much higher than the company’s current results alone might justify, which is a sign investors are betting on a strong turnaround. But can Starbucks deliver enough to close this premium?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Starbucks Narrative

If you see the story evolving differently, or prefer to dig into the numbers on your own terms, it's quick and easy to shape your own outlook in just a few minutes. Do it your way.

A great starting point for your Starbucks research is our analysis highlighting 1 key reward and 5 important warning signs that could impact your investment decision.

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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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