[Note: Starbucks’ fiscal year 2023 ended October 1]

An Overview of Starbucks Stock

Starbucks stock, the world’s leading roaster, marketer, and retailer of specialty coffee worldwide, currently trades at $93 per share, around 26% below its level of $126 seen on July 26, 2021 (pre-inflation shock high), and has the potential for gains. In fiscal 2023, Starbucks booked a 12% year-over-year (y-o-y) revenue growth to almost $36 billion, led by an 8% comps growth. In addition, its earnings per share (EPS) of $3.58 was up 26% y-o-y in FY 2023. Despite its consistent revenue growth, the company has not been able to increase its margins in a meaningful way.

SBUX stock has seen little change, moving slightly from levels of $105 in early January 2021 to around current levels, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of SBUX stock concerning the index has been lackluster. Returns for the stock were 9% in 2021, -15% in 2022, and -3% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that SBUX underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL.

Will Starbucks Stock Rebound Amid Economic Uncertainty?

Returning to the pre-inflation shock level means that SBUX will have to gain about 35% from here. While it has the potential to recover to those levels eventually, we estimate SBUX’s Valuation to be around $102 per share, almost 12% higher than the current market price.

Evaluating Past Performance

Timeline of Inflation Shock:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to a high demand for goods; producers were unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply
• Since August 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how SBUX stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

SBUX and S&P 500 Performance During 2007-08 Crisis

SBUX stock fell from nearly $13 in October 2007 (pre-crisis peak) to almost $5 in March 2009 (when the markets bottomed out), implying that SBUX stock lost almost 65% of its pre-crisis value.

Recent Fundamental Trends

SBUX revenues fell from $26.5 billion in 2019 to $23.5 billion in 2020, due to the impact of Covid-19 lockdowns worldwide. However, the company’s revenue grew to about $32.3 billion in FY 2022, striking a healthy balance between rising customer traffic and increased spending during this period. Earnings per share fell to around 79 cents in FY 2020 from $2.95 in FY 2019 before rising back to $2.85 in FY 2022.

Looking Ahead

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe SBUX stock has the potential for strong gains once fears of a potential recession are allayed.

[1] Returns as of 1/19/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.