MADRID, SPAIN – 2025/11/12: American multinational chain, Starbucks Coffee, store and logo in Spain. (Photo by Xavi Lopez/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Starbucks stock (NASDAQ: SBUX) has had difficulty keeping up in 2025. In the last year, the S&P 500 has outpaced it by 14%, while Starbucks has declined by 14%. Given the company’s reputation as a well-known, resilient consumer brand, this discrepancy prompts valid inquiries about the factors contributing to its downturn.
Before we delve deeper, a brief reminder: if you seek upside potential with less risk than investing in an individual stock, broader strategies like the High Quality Portfolio have significantly outperformed their composite benchmarks. However, if you’re engaging in stock selection, the question is straightforward: is Starbucks a name to buy on dips, or a stock to fear at this moment? Our multifaceted analysis leans towards pessimism. A decline to $65 from the current $85 is not out of the question, and various underlying weaknesses in the fundamentals warrant caution. Starbucks exhibits poor operating performance, fragile downturn response, and a valuation that only seems logical with strong growth—which is currently lacking. Furthermore, check – Could Akamai Stock Drop 30%?.
Let’s explore what is truly happening.
Labor Strain Adds Pressure
Ongoing labor disturbances in the U.S. are adding another layer of strain. Numerous baristas have organized walkouts over wages, scheduling, and stalled contract negotiations, raising concerns about increased labor expenses and disruptions at individual stores. While the financial effects remain uncertain, the strike highlights the central issue: Starbucks is grappling with structural hurdles at a time when investors are already doubting its growth and valuation.
Valuation: Priced for More Than It Delivers
The market continues to assign Starbucks a premium valuation, yet the fundamentals no longer justify it. Earnings and cash flow lag behind the multiples that investors are paying, and revenue growth isn’t robust enough to validate a ‘premium brand’ pricing. In simple terms, the stock is still valued as if it were the Starbucks of the past, not the slower-growing entity of today—a disconnect that warrants caution.
Growth: A Slow Drip, Not a Refill
Growth has declined significantly.
In the previous three years, Starbucks has achieved an average annual revenue growth of under 5%. In the last twelve months, sales increased by 2.8%, and in the most recent quarter, revenue climbed by 9.4% year over year— a commendable pick-up, but insufficient to alter the broader trend.
The company still draws consistent demand, yet it is behaving more like a mature packaged goods enterprise than a global growth narrative.
Profitability: Middle of the Pack
Margins reflect the same narrative. Starbucks’ operating margin hovers around 10%, and net margin is approximately 7%—well below market averages. Cash flow remains robust at nearly $5 billion in operating cash flow over the past year, but profitability is insufficient to support the stock’s premium valuation.
Increased labor costs, promotional efforts, and inconsistent store-level productivity have added to margin pressures. None of these factors are critical, but they do weaken the investment proposition.
Financial Stability
Starbucks possesses a solid financial base. With roughly $3.5 billion in cash and about $16 billion in total debt, the balance sheet is manageable in relation to its $96 billion market cap. Liquidity is adequate, but the company’s increased leverage is notable, especially during a period of slower growth.
Downturn Performance: A Tough Ride Through Storms
Historically, the stock has experienced sharper falls and delayed recoveries compared to the broader market during various crises:
- 2022 inflation shock: SBUX declined over 44% compared to a 25% dip in the S&P 500 and has yet to fully recapture its prior peak.
- 2020 pandemic: The stock fell nearly 40%, more than the S&P 500’s decrease, although it recovered within the year.
- 2008 financial crisis: Starbucks plummeted by more than 80% peak-to-trough—significantly worse than the market.
Even outside of major crises, the stock has displayed susceptibility to earnings resets and business updates. Read SBUX Dip Buyer Analyses to understand how the stock has bounced back from significant drops in the past.
So Should You Buy or Be Afraid?
Is investing in Starbucks risky? Yes—but not due to the business collapsing. The primary issue is misalignment: the valuation is still high, while growth, margins, and historical robustness do not align with such pricing.
Our perspective: Starbucks appears unattractive at current prices. Weak operational performance and a tendency for sharp declines suggest that investors may find more favorable entry points.
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