Should You Rethink Starbucks After Recent Expansion Efforts in China?

Trying to decide what to do with your Starbucks shares right now? You’re not alone. After a period of big swings, the stock has been on a bit of a rollercoaster, tugged by economic uncertainty, shifting consumer habits, and renewed conversations about what a global growth brand like Starbucks should really be worth. While shares are down about 6.6% year to date and roughly 9.3% over the past year, there have been glimmers of optimism, such as the modest 2.2% bump in the last 30 days, for instance. Investors seem to be weighing fresh reports about expansion efforts in China, new digital loyalty innovations, and ongoing labor discussions as they rethink the company’s trajectory.

On the valuation front, the picture is just as nuanced. Starbucks scores a 1 out of 6 on our valuation checklist, indicating only one key mark of undervaluation so far. This is a clear sign this isn’t a value play across the board, at least for now. So, what does that number really mean, and how should you think about Starbucks’ price in the current climate?

Let’s break down each valuation method to see where Starbucks stands right now. And as we go, stick around for an even more insightful way to view the company’s true worth, coming up at the end of our analysis.

Starbucks scores just 1/6 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 free cash flows and then discounting them back to today's dollars. This reflects what investors might be willing to pay now for those future earnings. This approach provides a data-driven estimate of the stock's "true" worth based on fundamental business performance.

For Starbucks, the latest trailing twelve months Free Cash Flow stands at $2.36 billion. Analysts offer direct forecasts for the next five years. After this period, Simply Wall St extrapolates projections. According to these estimates, Starbucks is expected to generate approximately $4.68 billion in Free Cash Flow by 2035.

The DCF model in this analysis signals a fair value estimate of $51.37 per share. Compared with the current share price, this suggests Starbucks stock is about 67.6% overvalued. In other words, the market prices in substantially more optimism about the business’s future than what the projected cash flows currently justify.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Starbucks may be overvalued by 67.6%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Starbucks Price vs Earnings

For profitable businesses like Starbucks, the Price-to-Earnings (PE) ratio is a widely used valuation metric because it directly relates a company’s share price to its current earnings. Since Starbucks continues to deliver consistent profits, the PE ratio offers a straightforward lens for investors to gauge how much they are paying for each dollar of earnings today.

What counts as a “normal” or “fair” PE ratio will depend on growth expectations and risk. Companies expected to grow quickly or with more predictable earnings typically command a higher PE, since investors are willing to pay a premium for future earnings potential and relative safety. Conversely, firms with slower growth or more risk generally see lower PE ratios.

As of now, Starbucks trades at a PE ratio of 37.17x. This is higher than the Hospitality industry average of 23.86x and below the peer group average of 57.70x. Rather than benchmark solely against the industry or peers, Simply Wall St uses a proprietary “Fair Ratio” of 34.68x for Starbucks. This figure reflects the company’s expected growth, profitability, risk profile, size, and sector. By adjusting for these underlying business drivers, the Fair Ratio offers a more nuanced comparison than simply lining up numbers side by side with similar companies.

Comparing Starbucks’ actual PE ratio of 37.17x with its Fair Ratio of 34.68x reveals only a slim premium. This suggests the stock’s current valuation is very close to what would be expected based on its fundamentals and outlook.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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. Let's introduce you to Narratives, an intuitive approach that links a company’s story to financial forecasts and then to a fair value.

A Narrative is simply your view, or story, of how Starbucks might perform in the future, backed up by your own projections for things like revenue growth, profit margins, and the fair value you believe is justified. Narratives help turn complex numbers into a bigger picture, showing how your beliefs about the company's strategic moves, risks, or opportunities translate into a potential price target.

Narratives are available right on Simply Wall St’s Community page, making it easy to compare your assumptions with those of millions of investors. As fresh news and financial results come in, Narratives update dynamically, helping you keep your valuations in real time so you can quickly see how key events might shift your outlook.

For example, some investors’ Starbucks Narratives are more cautious, assuming weaker Chinese growth, margin pressure, and a fair value of $86 per share. Others see strong operational turnarounds and digital innovation supporting targets up to $115 per share. By comparing your own Fair Value to the current share price, Narratives empower you to make confident, evidence-based buy or sell decisions.

Do you think there's more to the story for Starbucks? Create your own Narrative to let the Community know!

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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