Starbucks’ (SBUX), stock has been one of the biggest losers in recent years. In the last five years, its stock price has fallen by more than 22% while the S&P 500 has increased by 83%. The drop in value means that $10,000 in the stock of this company in its peak in 2021 is now worth only $6,410.
Starbucks continues to grow, but there are still challenges
Starbucks is the largest coffee company in the World. Its growth continues to be aided by the addition of new stores and more customers using its products.
In the end, the company’s annual revenue soared from $26.5 billion to $35 billion during the past financial year.
Profits are also increasing, with the company’s annual profit moving from $3.5 billion to $4.1 billion.
The reality, however, is that this company has faced significant challenges which have turned it into a fallen Angel. In China, the company’s fastest-growing country, it is not growing at its previous pace.
China’s vast population, and its growing purchasing power make it a vital market. Starbucks opened more than 6,500 shops in China over the past few years and plans to keep this up in the future.
Due to the increasing competition, China is now a much more challenging market for Starbucks. Luckin Coffee is a Chinese firm that has grown aggressively and opened more than 10,000 stores.
It is also competing in the growing bubble tea market in China. Leading brands such as Dunkin’ Donuts, Costa Coffee Pacific Coffee and Seesaw Coffee are also growing quickly in China.
Starbucks faces a number of challenges in China, including the fact that the company is American at a period when the relationship between China and the United States is not good. Many Chinese people have turned to Luckin because it offers high-end brands.
Starbucks faces other challenges, even in the United States where wages have been increasing. California recently passed a bill which increased the minimum wage from $15 to $20 an hour. This means that Starbucks’ costs are increasing.
Starbucks recent quarterly update
Starbucks’ most recent results were not very impressive. The North American revenue increased by only 1%, to $6.8 Billion. However, the operating margin dropped by 70 basis point to 21%. The same store sales fell by another 2%, while ticket changes dropped by an additional 6%.
The international segment saw a 7% drop in same-store sales last quarter, while revenue fell by 7%. The company’s revenue dropped by 7%, despite having more stores than it did in the same time period of 2023. Total store count increased from 19,630 stores to 21,279. Comparable sales in China fell by 14% for the third quarter.
It will take some time to turn around.
Starbucks hopes that current headwinds end, and the company can return to its growth. Starbucks is in a state of flux for quite some time. Howard Schultz returned to Starbucks after a four-year absence. After Laxman Nairsimhan was named as new CEO, he left the company.
In an effort to boost its takeaway sales, Laxman has formed a partnership with Grubhub as part of their turnaround strategy. Starbucks Studios is a brand new initiative that creates content for the business. It has announced that it will lay off some workers from the Middle East.
However, I still believe it will take some time for the company to turn around due to its challenges. Analysts believe it should lay off more employees, particularly in the United States where growth has slowed.
Starbucks is overvalued, and it’s a stock that has no growth. The forward PE ratio is 21, which is higher than the median for its sector of 16.
Starbucks Stock Price Forecast
Weekly chart of SBUX shows a bearish price trend for the last few months. The decline began when the SBUX stock price peaked a few year ago at $112. The stock formed a death-cross as the moving averages of the 50 and 200 weeks have crossed in a negative direction.
The stock is hovering just above $71.46, the level of support that has been critical to its performance since May. The stock is likely to continue dropping, particularly if it falls below the $71.46 key support level. The next level to monitor is $65, which represents the lowest swing since May 2022, and a 15% drop from the current price.
The post Starbucks Stock Price Nears A Crucial Level: 15% Drop is likely to be updated as new information becomes available
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