Starbucks (SBUX) Could Be 4% Undervalued On Record Unicorn Frappuccino Sales Weekend
Starbucks (SBUX) has drawn fresh attention after a brief return of its Unicorn Frappuccino led to the company’s strongest North America sales weekend on record, including a record single day in its company-operated stores.
See our latest analysis for Starbucks.
Set against this burst of interest in the Unicorn Frappuccino, Starbucks’ share price has climbed in recent months, with a year to date share price return of 28.52% and a 1 year total shareholder return of 19.60%, which points to positive but moderating momentum over longer horizons.
If you are thinking beyond Starbucks and want to see what else is moving, now could be a good time to scan 21 top founder-led companies
Starbucks now sits between a bullish story of record-breaking weekend sales and a more cautious view tied to lagging same store trends and a high forward P/E. Which side do the current valuation numbers support next?
Most Popular Narrative: 3.8% Undervalued
Starbucks last closed at $107.92 against a narrative fair value estimate of $112.23, so the current setup hinges on how sustainable future earnings power really is.
The Back to Starbucks strategy aims to improve partner engagement and reduce turnover, which is expected to enhance the customer experience and drive higher quality transactions, potentially increasing revenue and net margins. Plans to reestablish Starbucks as a third place by evolving coffee house designs and expanding in attractive growth markets could lead to increased customer visits and improved unit economics, thus boosting revenue.
Want to see why this fair value sits above today’s share price? The narrative leans heavily on a step change in profitability and a richer earnings base. Curious which growth and margin assumptions sit behind that upgrade? The full story joins those moving parts into one valuation roadmap.
Result: Fair Value of $112.23 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Starbucks still faces pressure from higher labor costs, which have already reduced operating margin, and from a 1% comparable store sales decline that signals uneven demand.
Find out about the key risks to this Starbucks narrative.
Another View On Starbucks Valuation
The earlier fair value narrative suggests Starbucks is 3.8% undervalued at $107.92 versus $112.23. The preferred earnings multiple tells a different story. Starbucks trades on a P/E of 62x, versus a fair ratio of 41.6x, the US Hospitality industry at 23.6x and peers around 44.7x. That richer pricing raises the question of how much good news is already in the stock.
For a closer look at how this earnings based view compares with other checks, take a moment to review the See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
Given the mix of optimism and caution around Starbucks today, it helps to look at the numbers yourself and move quickly to form your own view based on the 1 key reward and 3 important warning signs.
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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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