Is There an Opportunity in Starbucks After Shares Fall 13% Over the Past Year?

• Ever wondered if Starbucks is trading at a price that truly reflects its value, or if there's an opportunity hidden in plain sight?
• Starbucks shares have seen some ups and downs lately, rising 1.6% over the past week and 3.0% in the last month, but still sitting at -13.1% for the past year.
• Market chatter around Starbucks has focused on consumer trends and expansion moves, including growing its global footprint and rolling out new in-store experiences. These headlines may explain some of the recent price swings as investors try to gauge the company’s next phase of growth.
• Looking at the numbers, Starbucks currently scores 0 out of 6 on our valuation checklist, suggesting it may not be undervalued by traditional standards. However, let's dig deeper into different valuation methods to see if the real answer is more nuanced, and stick around for an even sharper way to judge a stock’s worth at the end of this article.

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

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today's value. This approach aims to answer whether Starbucks is trading at a price justified by its long-term profit streams.

Currently, Starbucks generates $2.23 Billion in Free Cash Flow, serving as the baseline for valuation. Analysts forecast steady growth in these cash flows over the next several years, projecting Free Cash Flow to reach $3.61 Billion by 2028. While these numbers come directly from analyst consensus for the next five years, Simply Wall St extrapolates additional years to provide a complete ten-year forecast, showing incremental increases each year beyond 2028. All figures are in US dollars.

According to this DCF analysis, the estimated intrinsic value per share for Starbucks is $49.24. However, with the current share price sitting substantially higher, the implied DCF discount is negative 76.1 percent. This means the stock is considered overvalued by this method.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Starbucks may be overvalued by 76.1%. Discover 923 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 (P/E Multiple)

The price-to-earnings (P/E) ratio is one of the most widely used valuation methods for profitable companies like Starbucks because it links the company’s current share price to its underlying earnings. It gives investors a quick way to gauge whether the stock is trading at a premium or discount compared to peers, industry, or its own growth prospects.

The “right” P/E ratio is rarely a one-size-fits-all number. Higher growth expectations and a lower risk profile usually justify a higher P/E, while slower growth or higher risks tend to push the multiple lower. In Starbucks’ case, the current P/E ratio sits at 53.11x. For context, the average P/E across the Hospitality industry is 21.37x, and Starbucks’ direct peers are averaging 45.78x.

Simply Wall St calculates a proprietary “Fair Ratio” for Starbucks, which blends multiple factors including growth outlook, profitability, industry classification, market cap, and risks. This approach is more holistic and tailored than simply comparing Starbucks to its competitors or the broad industry. Such comparisons can miss the nuances of what actually drives a fair valuation for Starbucks specifically.

Right now, Starbucks’ Fair Ratio is estimated at 35.59x, while its actual P/E stands higher at 53.11x. That suggests the stock is trading at a premium to what you’d expect given all the company’s characteristics. This points to overvaluation by this metric.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1438 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Starbucks Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your own story about Starbucks: it's a framework that connects your perspective about the business, such as future leadership moves, market risks, or new growth engines, directly to a financial forecast and a fair value estimate.

Narratives make investing easier by letting you combine your real-world observations and assumptions (like revenue growth or margin recovery) with the latest financial data, so you can see how your thesis stacks up against market prices. On Simply Wall St's Community page, you can access and create Narratives just like millions of other investors do, compare your fair value with the share price in seconds, and quickly spot if it's time to buy, hold, or sell based on your unique view.

Plus, Narratives update automatically whenever new news, earnings, or market events hit, so your fair value and assumptions are always relevant. For example, some investors see star potential if Starbucks’ digital and efficiency strategy pays off, forecasting a fair value of $115 per share, while others highlight risks from rising costs and labor disputes, putting fair value as low as $73 per share. The choice of Narrative, and what you act on, is truly yours.

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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