Starbucks (SBUX) has long been—and still is—the go-to name when it comes to coffee shops, known not just for its coffee but also for its global presence, inviting atmosphere, and convenience. Lately, however, the company has lost its way, facing a string of headwinds from rising competition, changing consumer habits, and slowing sales.
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Since these are more structural challenges than temporary bumps, the impact has shown up in the stock, with SBUX underperforming the broader market over the last three to five years, even when factoring in dividends. This has put pressure on management to take real action to bring back the dominant cash cow Starbucks once was.
One of the key concerns is that a stretched valuation doesn’t typically pair well with a company in the midst of a turnaround. That’s why I maintain a Hold rating on Starbucks stock—for now, there’s limited evidence that investors are fully convinced by the recovery narrative, and recent results have yet to deliver meaningful progress.
In this article, I’ll take a closer look at what has led to Starbucks’ recent challenges, how the turnaround strategy is progressing, and whether the stock merits further consideration at this stage.
Starbucks’ Business Under Pressure
Starbucks is currently in a turnaround phase, executing a back-to-basics strategy—officially dubbed “Back to Starbucks”—with a new management team aiming to revitalize the brand and recapture its heyday.
For instance, over the past three years, the stock has significantly underperformed the broader market, rising only 28% compared to 69% for the S&P 500. This underperformance stems from several challenges, including increased competition among coffee shops, a weaker market in China (one of Starbucks’ largest markets), and a continued decline in comparable store sales. Stores that have been open for more than a year have seen sales drop for four consecutive quarters, signaling a decline in customer traffic.
More recently, in the second quarter of 2025, comparable sales declined 1% globally, an improvement from the 4% decline in the previous year. Profitability also took a hit, with operating margins contracting 4.5% over the same period, settling at 8.2%.
Meanwhile, Starbucks has been expanding its locations and investing heavily in restructuring. As a result, capital expenditures (CapEx) have grown at a CAGR of 23% over the last three years, while revenues have only increased at a CAGR of 5%. One of the company’s key strengths—free cash flow—has also suffered, dropping to $2.7 billion over the past twelve months, well below the $4.5 billion recorded in 2021.
This indicates that recent heavy investments still have uncertain returns, and that operational and competitive challenges have become structural issues in the investment thesis. When this happens, unlike typical cyclical headwinds, action is needed rather than business as usual.
Starbucks Takes Action
The good news for Starbucks bulls is that the company isn’t ignoring its current challenges and has been actively working to address them.
While the focus remains on getting back to basics, the goal is clear: Starbucks aims to reclaim its reputation as a place of convenience, ambiance, and experience, rather than just another coffee shop vulnerable to local competition.
For example, CEO Brian Niccol, hired for his successful track record of taking Chipotle (CMG) to the next level, has been implementing transformative operational changes for nearly a year. These initiatives include slimming down the menu by 30%, reducing reliance on promotions to boost average ticket size, and redesigning and opening stores in smaller formats in the U.S.
The market has only partially bought into these changes so far—the stock is up over 23% in the last twelve months, despite a few bumps along the way. However, results are still mixed. In the most recent earnings report, both revenue and earnings fell short of analyst expectations.
Over the past six months, the EPS growth outlook for 2025, 2026, and 2027 has been revised downward by approximately 17–18%. Market analyst consensus now expects Starbucks to post annual EPS of $2.99 in 2026 and $3.60 in 2027, up from $2.46 in 2025. As a result, I see the market divided on the latest financial results, with analysts now questioning whether Starbucks can execute its “back to basics” strategy.
Old Vs. New Market Dilemma for SBUX
The main question right now is whether the turnaround will occur in a healthy manner or if more pain lies ahead.
In my view, the implicit goal is to bring free cash flow back to levels close to 2019 and 2021 (around $3.5 billion to $4.5 billion). This would be driven by an expected return to growth in comparable sales in the U.S. this year and next, supported by store renovations. While CapEx is likely to remain high, over time these investments should boost revenue and margins, gradually driving a recovery in free cash flow.
The uncomfortable part is that Starbucks trades at a stretched valuation. While this can be somewhat justified by its strong global brand moat and solid cash flow generation (even if squeezed), the stock currently trades at 38x forward earnings—more than 120% above the industry average and 12% above its own historical average over the past five years.
Given that Starbucks is not trading at a discount, using a technical filter—such as waiting for moving average inflections to become clearer signals on whether the turnaround is priced in—can be helpful. Currently, SBUX is a Buy by a narrow margin above the 100-day simple moving average, which stands at $93.30, compared to the current stock price of $93.83. However, it’s a Sell based on the 200-day simple moving average, currently at $94.60.
I interpret these signals as the market indicating that Starbucks is on the verge of showing that the worst may be behind it, but it hasn’t fully confirmed that yet. I would only consider going long if the stock manages to break through and sustain above the 200-day average, which would be a more reliable inflection signal.
Is Starbucks a Buy, Sell, or Hold?
Analyst sentiment on Starbucks reflects a divided market view. Of the 24 analysts who have issued ratings over the past three months, 13 are bullish while 11 remain neutral. SBUX’s average price target is $95.52, suggesting a modest upside of approximately 1.5% from the current share price.
Not Quite Ready to Sip That Starbucks Stock
Starbucks currently trades at high multiples for a turnaround-mode company, putting significant pressure on the business to deliver better results faster than the market expects. This stretched valuation reduces the margin of safety for investors, increasing the risk if the turnaround execution faces delays or setbacks.
From a technical perspective, moving averages—especially the 200-day SMA—serve as key indicators of market confidence in the “Back to Starbucks” strategy. While there are signs of improvement and growing acceptance of the turnaround thesis, the stock hasn’t yet consistently broken through the main long-term moving averages.
In my view, a prudent approach is to wait for a sustained break above these technical resistance levels before investing with greater conviction, aiming for better risk-adjusted returns.