If you’re both a Starbucks (SBUX) customer and a shareholder, you’ve probably noticed something interesting: nothing seems different. The cup hasn’t changed, the drink arrives on time, and the experience is as polished as ever. But beneath that familiarity, the business economics have shifted.
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Coffee is no longer cheap, labor and rent costs keep climbing, and growth in developed markets is showing signs of strain. The result is a growing disconnect between what customers see and what investors are being asked to pay—one that leaves me bearish on Starbucks at current levels.
When Coffee Gets Structurally Expensive
Coffee markets have been under pressure for years, mainly because growers in Brazil and Vietnam continue to be hit by adverse weather. Harvests have suffered intermittently since 2020. In fact, arabica prices that once sat below $1 a pound have at times risen to close to $3 a pound. Robusta has followed the same path, reaching levels not seen in decades, as farmers try to rebuild stocks while demand has proven harder to shake than expected.
Investors often look at coffee prices and assume that it’s only commodity traders who are affected. In reality, the underlying coffee industry can be easily disrupted. Export prices from Vietnam, the world’s largest robusta supplier, have set or approached records through 2024 and 2025, with year-on-year increases of over 70% at times. The end result is that inventories are still thin. Prices have come off their highs recently, helped in part by looser U.S. tariffs on some Brazilian farm exports, but coffee remains priced well above what would have been considered normal before the COVID pandemic.
Consumers feel it every morning. U.S. retail coffee prices have risen by roughly 40% over the past year or so, reflecting not only the cost of beans but also higher wages and logistics costs embedded in the cup. Over roughly the same five-year period, Starbucks’ total return has been flat to slightly negative, badly trailing the S&P 500 (SPX), which has almost doubled, showing that markets have been quietly pricing in this harsher cost regime in future earnings growth estimates.
The Squeeze in Recent Results
You can see that squeeze in the company’s most recent numbers. In its fiscal Q4 of 2025, Starbucks finally broke a long streak of negative comparable sales, posting 1% global comp growth on about 5% revenue growth. On the surface, that sounded like a long-awaited inflection point in the turnaround story. Still, the company’s comp growth remains incredibly underwhelming.
Further down the income statement, the picture was even less reassuring. Starbucks’ operating margin for the quarter slipped to the low single digits from the mid-teens a year earlier, as high coffee prices, tariffs, and restructuring charges ate through profitability. EPS came in below analyst expectations, even though revenue was slightly ahead. This is never a comforting combination for a consumer brand positioned at the premium end of the market.
At the top, management has been candid about the cost of trying to reset the business. Starbucks has been closing underperforming stores, cutting hundreds of non-retail roles, and investing in more capital-intensive “cozier” refurbishments meant to draw customers back in, all of which requires upfront cash. At the same time, it is dealing with unionisation efforts, political noise, and scrutiny of a CEO pay package that sits awkwardly alongside its carefully curated values-driven image, all while trying to pull back from heavy discounting without losing value-conscious visits.
A Turnaround Narrative on a Premium Multiple
All of that would be more palatable if the market valued Starbucks like a fixer-upper. Sadly for bargain-hunting investors, it doesn’t. At around $89 a share, the stock’s valuation sits far above the broader market and most large restaurant peers, despite its consistent underperformance.
Consensus estimates show $2.38 in EPS in Fiscal 2026 and just above $3.00 for Fiscal 2027, which implies Starbucks is trading at roughly 38x this FY’s EPS and just under 30 times next year’s – and that is for a business where top-line growth expectations sit in the mid-single-digit range. These are multiples you might expect for a company with clear competitive momentum, not one grappling with higher structural input costs, labour tensions, and a brand that may be losing some of its everyday appeal as rivals multiply.
The bull case assumes that store refurbishments and a refreshed beverage line-up quickly rebuild traffic without needing another round of meaningful price increases. I don’t see this being the case. I tend to lean toward the bear case: any demand recovery will likely simply fill the hole dug by more expensive coffee, higher wages, and an ever more expensive promise of “third place” hospitality.
Is SBUX a Buy, Hold, or Sell?
On Wall Street, Starbucks stock carries a Moderate Buy consensus rating based on 12 Buy, seven Hold, and two Sell ratings over the past three months. SBUX’s average stock price target of $95 implies ~7.5% upside potential over the next twelve months.
Final Thoughts
Starbucks remains a powerful global franchise with an unmatched brand, scale, and customer loyalty. But the stock appears priced for a far smoother operating environment than the fundamentals currently support. Margins are still in the middle of a rebuilding phase, pressured by higher input costs, labor expenses, and ongoing operational adjustments. At the same time, the equity continues to trade as if Starbucks were a clean, durable growth story—leaving little margin for error if conditions fail to improve as expected.
With much of the optimism already reflected in the valuation, the risk-reward skews unfavorably in my view. Upside looks constrained unless execution meaningfully exceeds expectations, while downside remains if cost pressures persist or growth in developed markets disappoints. For now, I remain cautious on SBUX and prefer to stay on the sidelines, watching how margins and demand evolve before reconsidering that stance.