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This Starbucks Stock Forecast will help you determine if SBUX is a buy, sell, or hold.
Starbucks Stock Forecast: Company Overview
In 1971, Starbucks began selling coffee at a little storefront in Seattle. It prided itself on ethically sourcing and roasting the highest quality beans in the world.
Fifty years later, Starbucks has become one of the most recognizable brands on Earth.
Its former CEO, Howard Schultz, revolutionized the service industry by prioritizing culture and innovation above the status quo.
Starbucks Stock Forecast: Investment Potential
#1. Loyal Customer Base
Starbucks is a luxury brand with a cult following. It is the Apple of the coffee market.
Carl Schultz reinvented the Starbucks culture during his time as CEO. Employees became baristas, and a “large coffee” became a Venti.
Shultz was planting seeds — these subtle changes in the way people spoke about Starbucks products began the company’s differentiation.
Production innovation kept pace with the company’s proprietary vocabulary.
Starbucks began offering coffee-related products that appealed to a wider audience, which was willing to pay a premium price for a premium experience it could not get elsewhere.
Similar to designer clothing brands, Starbucks’ premium pricing only reinforces its brand cache.
Brick-by-brick, the brand is built until there are millions of decentralized (free) advertisers spreading Starbucks’ brand awareness more effectively and authentically than any TV advertising campaign could achieve.
Starbucks is embracing digitization via its mobile app, which simplifies ordering and increases awareness around new offerings. It also hosts the company’s growth engine: the Starbucks Rewards program.
The Starbucks Rewards program has 22 million active users and adds millions more each quarter. As the user base grows, so does engagement.
The company revealed that reward members order more frequently and spend more per order than non-app customers.
Starbucks will continue to grow as it gets on more and more home screens.
#3. Physical Expansion
Starbucks expects to have 55,000 locations by 2030, marking a 70% increase over its current 32,900 stores.
Starbucks is the dominant force in the coffee industry, but it only makes up approximately 40% of the U.S. coffee market. Expect Starbucks to aggressively pursue the remaining percentage.
However, Starbucks is even more focused on its opportunities abroad.
The majority of its expansion will occur in the international markets, most notably China. On average, a new Starbucks store opens in China every 15 hours.
Starbucks will directly compete with the controversial Luckin Coffee, which has thousands of locations and currently serves as the Starbucks of China.
#4. Prime Real Estate
It helps that Starbucks’ core offering is addictive.
While no government agency outright classifies caffeine as an “addictive substance”, they do acknowledge its ability to create dependencies.
This amplifies the potential for habitual consumption. The following captures Starbucks’ effectiveness:
Store on Every Corner + Convenience + Addictive Product
Drive-thru coffee is expensive because you’re paying for convenience. Starbucks amplifies convenience by being on every corner and expediting the entire process via on-the-go ordering.
The fact that the product creates physical dependencies is just icing on the cake.
#5. Global Reopening
In-store Starbucks traffic is returning to pre-pandemic levels, yet much of the world is still recovering.
As Starbucks expands its reach, it has become more reliant on the international markets.
International same-store sales and foot traffic will be metrics to watch in the coming quarters.
Starbucks Stock Forecast: The Moat
Starbucks combines brand affinity and habit-forming products to make one effective business model.
SBUX Moat = Cult Following + Addictive Product
There is typically an addictive component to cults — whether it’s the social comradery or (sometimes misplaced) sense of purpose, there is a force that keeps the members coming back for more.
However, few cult-dependencies are legal, publicly accepted, and encouraged beyond a niche, often private group.
Starbucks’ cult following is not only enforced by its “brand signaling” (cup, logo, and barista jargon) but also by its addictive product.
Coffee contains caffeine, which is a natural stimulant that is responsible for coffee’s addictive properties.
There is a complicated perception around drugs in society. Some are illegal, some allowed in certain qualities or to prescribed individuals, and others drugs are simply 100% legal.
Coffee is sold at the perfect intersection of the following:
- Full legality
- No negative stigma
- Health benefits
We understand that Starbucks is not the only place that sells coffee — coffee in and of itself is not a moat.
But Starbucks has been able to build one of the best brands in the world. And that is very difficult to replicate.
Starbucks Stock Forecast: From the Earnings Report
Starbucks recently reported fiscal Q4 2021 earnings. Let’s see the highlights and hear from the executives:
- EPS: $1 vs 99 cents expected
- Revenue: $8.1 billion vs $8.21 billion expected
- Net Income: $1.76 billion on the quarter, up from $392.6 million a year earlier
Net sales rose 31% year-over-year, but fell short of estimates set by the analysts.
Global same-store sales increased 17%, but also missed on estimates set by StreetAccount. The international markets weighed this metric down: international same-store sales grew just 3% year-over-year.
The company’s COO John Culver noted that peak hours are back to pre-pandemic times
Starbucks Stock Forecast: The Competition
#1. Local Competition
There may be local shops that elicit their own strong following, but these scale in limited areas and are not a threat to Starbucks’ global market share.
Math is on Starbucks’ side — restaurants and coffee shops are tough businesses.
The Fall of the Starbucks Empire would require tens of thousands of local shops (that aren’t working together) to prosper.
#2. National Competition
People don’t have the bandwidth to acknowledge two national coffee leaders. Starbucks has the throne.
Some brands might be more popular in certain geographical areas, like Dunkin’ in New England or Tim Horton’s in Canada. But they struggle to compare to SBUX on a global scale.
Here are Starbucks’ top competitors:
- Dunkin’ (DNKN)
- McDonald’s (MCD)
- Restaurant Brands International (QSR)
- Luckin Coffee (OTCMKTS: LKNCY)
- Chipotle (CMG)
- Yum! Brands (YHM)
- Laird Superfood (LSF)
- Keurig Dr Pepper (KDP)
McDonald’s has a larger global presence than Starbucks. However, the two companies attract different customers and are popular for different reasons.
These battles will intensify as Starbucks continues to expand its menu.
Starbucks Stock Forecast: Know the Risks
#1. Coffee and the Economy
Starbucks is a global brand that is vulnerable to economic downturns at home and abroad.
While most Fortune 500s have a global presence, some businesses are less recession-proof than others.
For example, a company can’t afford to cut back on its cybersecurity budget during tough times, but individuals might reduce their consumption of pumpkin spice lattes.
We don’t expect people to quit drinking coffee when the S&P 500 dips, but luxury coffee and dining out are areas of the budget that are likely to get cut.
Starbucks shares this vulnerability with its competitors, so this “bear case” is relative to other industries and not so much within the scope of the coffee market.
#2. Expansion Risks
On a more granular note, Starbucks must deliver on its expansion plans to please Wall Street. This requires a ton of overhead, which comes with risk.
At times, U.S. companies that aggressively expand in China run into short-term turbulence. This is currently happening with Tesla.
While making cars is different from brewing coffee, there are inherent uncertainties that come with doing business in China.
Starbucks Stock Allocation in Your Portfolio
So, how much Starbucks stock should you buy, if any? The following questions might help you decide:
- Is Starbucks stock consistent with your investing goals and time horizon?
- Is Starbucks’ brand affinity sustainable or fleeting?
- Can Starbucks execute on its China expansion?
- Is Starbucks’ moat large enough to fend off competitors?
- Will changing work habits and less commuting affect Starbucks stock?
- Can Starbucks successfully expand its menu and enter new markets?
- Will a shortage of workers hurt the company’s margins?
Hopefully, these questions get the ball rolling for you — portfolio allocations depend on an array of personal factors and vary from person to person.
Starbucks Stock Forecast: FAQs
Is Starbucks a good investment right now?
Some consider Starbucks stock to be a good investment right now because it embraces digitization via its mobile app and rewards program.
Data reveals that Starbucks customers who participate in the rewards program order more frequently and spend more on those orders.
Does Starbucks pay a dividend?
Starbucks offers an annual dividend yield of 1.70%. It has increased its dividend in each of the last 11 years.
Is Starbucks a Buy, Sell or Hold?
Starbucks is a buy, sell, or hold, depending on your personal investing goals. However, long-term investors might find Starbucks stock attractive because of the company’s loyal customer base and global expansion.
Is Starbucks profitable?
Yes, Starbucks is profitable. The company’s profit margin is currently around 10%, which measures a company’s overall efficiency in turning revenue into profit (higher the number, the more efficient). Starbucks’ margins have fallen due to the pandemic, but they are trending back in the right direction.
Bottom Line: Starbucks Stock Forecast
Starbucks is more than a “reopening stock”. It is a trend-setting company that will continue innovating and setting the standard for the food services industry.
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Starbucks stock.