Starbucks faces severe risk of stock plunge amid rising costs
- Starbucks has historically endured steeper losses than the market during downturns, notably falling 44% during the 2021-23 inflation shock.
- Current financial challenges, including rising costs and declining revenue growth, threaten Starbucks’ profitability and stock valuation.
- Analysts warn that without a turnaround, Starbucks' shares could drop significantly into the $40-$50 range based on current earnings trends.
In Warsaw, Poland, on September 16, 2025, Starbucks is facing significant financial challenges that have raised concerns regarding its stock valuation. Historically, the company has experienced losses that surpass the general market during downturns. For instance, during the inflation shock from 2021 to 2023, Starbucks saw its stock decline by 44% while the S&P 500 fell by only 25%. Current market conditions reveal a struggle in sustaining growth, driven by slower sales and adverse margin impacts from escalating costs. In recent years, Starbucks has experienced an average revenue growth rate of approximately 4.7%. However, this growth has stagnated, with only a 0.6% increase in sales the past year, from $36 billion to $37 billion. Operating income over the last year was reported at $3.8 billion, indicating a margin of 10.5% which is under pressure. Factors contributing to increasing costs include a 6-8% annual surge in labor expenses in response to rising wage demands tied to union actions, a nearly 15% rise in coffee bean prices year-over-year, and high dairy costs. Moreover, Starbucks plans to invest over $3 billion in its ‘Back to Starbucks’ reinvestment strategy over the next three years, affecting short-term profitability. With decreasing revenues and tighter profit margins, pundits are concerned that the company's stock may be overvalued. Currently priced around $83, the potential for a significant price reset is looming if the company’s fundamentals do not improve. Revenue slowdown, particularly in North America, alongside a volatile recovery in international markets, augments this vulnerability. Analysts project a decline in earnings per share (EPS) from $3.31 in FY 2024 to approximately $2.20 in FY 2025, with only a slight recovery to $2.71 in FY 2026, signaling a consistent decrease in profitability. If Starbucks is unable to reverse these trends—characterized by stagnant revenues, compressed margins, and intensifying competition—the stock could drop to the $40-$50 range over the next two years. Such a valuation adjustment reflects an ongoing reassessment of Starbucks by the market based on a more realistic earnings multiple ranging from 18 to 20 times. Consequently, while the company's long-term recovery potential remains intact, careful scrutiny of its present and future prospects is warranted given the evolving economic landscape.