Latest Developments:
Starbucks (SBUX) has struggled since 2Q24, with disappointing earnings and declining same-store sales. Despite efforts to improve, the company reported a 1% YoY revenue drop in 3Q24, with sales declining in both North America and internationally. Increased marketing expenses and personnel investments pressured margins, while global store growth continues. However, the outlook for same-store sales remains weak.

Investment Case:
Starbucks faces major challenges, including weak consumer sentiment in the U.S. and difficulties in China. Macroeconomic conditions and rising competition from local brands like Luckin Coffee have led to a 14% drop in same-store sales in China in 3Q24. Nationalist sentiments in China are further hurting Starbucks' brand appeal. Despite heavy investments, recovery in China looks uncertain, and weak consumer sentiment in the U.S. is an ongoing issue.

Company's Valuation:
Starbucks’ stock appears overvalued, trading at a premium of over 30%. A DCF valuation suggests a fair value of around $71.31, indicating significant downside from the current price of $96.58. Given the company’s struggles and uncertain outlook, the risk-reward profile does not justify the current valuation.

Disclaimer: The above is an excerpt on a report written by our close associate, Selendis Research. Check out the full report here on Seeking Alpha. All information provided is intended solely for general informational purposes. Seven Insights does not take into account individual financial goals or situations and does not provide personalized investment advice. Seven Insights is not a licensed securities dealer, broker, U.S. investment adviser, or investment bank.