Hook & thesis
Starbucks (SBUX) has staged a convincing rebound: the stock is trading at $99.46 after spiking on recent quarterly results and constructive commentary from CEO Brian Niccol. The market is paying up for proof that the U.S. business can restore traffic and that international expansion - particularly in China - can be a multi-year growth story. I believe there's still upside from here, but the rally is extended enough that you should buy with rules: a disciplined entry at $99.50, a tight stop at $94, and a mid-term target at $112.
The rationale is straightforward. Fundamentals show progress (comparable-store sales up and early traffic improvement), free cash flow is positive and meaningful, and management is articulating a realistic store-growth runway. Technically the stock is near overbought (RSI ~67) and above most moving averages, so expect volatility and possible short-term pullbacks. That argues for defined risk and a mid-term horizon where the fundamentals can matter again.
Why the market should care - the business case
Starbucks operates across North America, International, and Channel Development. The core growth story is twofold: rejuvenate the U.S. coffeehouse experience to restore transactions, and scale international store counts - management recently highlighted the potential for up to 10,000 more U.S. stores over the long run and an additional 15,000-20,000 stores in China. These targets aren’t short-term revenue levers; they're multi-year capacity expansion that justify a premium multiple if executed well.
Recent results back the thesis in early form. Comparable store sales accelerated to roughly 4% growth, and the company posted revenue beats in the latest quarter ($9.92B reported vs. $9.62B expected). Transaction momentum returned in the U.S. after several quarters of softness. At the same time, Starbucks is investing in wages and technology which compress near-term margins but aim to rebuild customer experience and lifetime value.
Key numbers to anchor the thesis
| Metric | Value |
|---|---|
| Current price | $99.46 |
| Market cap | $113.3B |
| Trailing P/E | ~82.8x |
| Free cash flow (TTM) | $2.337B |
| Dividend yield | 2.46% |
| 52-week range | $75.50 - $117.46 |
| RSI (short-term) | 67.39 |
Valuation looks rich on a headline P/E of ~83x. That multiple reflects market expectations for durable revenue growth and margin recovery. A more constructive read is on a cash flow basis: Starbucks generates over $2.3B in free cash flow and has an enterprise value of approximately $126B (EV/FCF is elevated but within reason for a high-quality consumer brand with scale and network effects). EV/sales is about 3.34x. Investors are effectively paying for brand resilience, international scaling, and the potential to restore traffic and per-transaction economics.
Technicals - cautious but not bearish
Momentum is bullish: price sits above the 10-, 20-, and 50-day SMAs (10-day SMA ~$95.03, 20-day ~$94.03, 50-day ~$89.01) and the MACD indicates bullish momentum. That said, the RSI approaching 70 and the speed of the run-up increase the chance of a short-term pullback or consolidation. Short interest is meaningful: latest reported short interest shows several weeks to cover (~5 days), and recent short-volume data points to active short selling on intraday moves. In plain terms, momentum can carry prices higher, but be ready for chop.
Trade plan (actionable)
- Trade direction: Long
- Entry price: $99.50
- Target price: $112.00
- Stop loss: $94.00
- Horizon: Mid term (45 trading days) - this gives time for momentum to re-accelerate on follow-through, for the market to digest upcoming catalysts, and for any consolidation to resolve. If price stalls or earnings/readouts disappoint within that window, exit to protect capital.
Rationale for levels: Entry at $99.50 is effectively a near-market pullback/breakout purchase that buys continued momentum while avoiding a chase above midday spikes. The $94 stop is beneath short-term moving averages and provides a clear technical invalidation if momentum turns. The $112 target sits below the 52-week high of $117.46 and represents a realistic mid-term upside (~12.6% from entry) given the company's growth runway and seasonal tailwinds.
Catalysts to watch (2-5)
- Execution on U.S. traffic recovery signals - further quarter-to-quarter improvement in comparable transactions will validate the turnaround narrative.
- International expansion cadence, especially China store openings and comp trends as management targets doubling international footprint.
- Next quarterly results - look for margin trajectory clarity as investments in wages and technology hit the P&L and whether comp growth translates into improved operating leverage.
- Macro inputs, especially coffee futures and input cost pressure that could affect margins if the market tightens.
- Dividend/ex-dividend timing - ex-dividend date 02/13/2026 could compress the price near the date; payable date 02/27/2026 is when the dividend is paid.
Risks - what could go wrong
- Profitability headwinds: Management is deliberately sacrificing near-term profits to invest in wages and technology. If those investments fail to lift traffic or retention, margins could stay compressed and earnings disappointment could trigger a deeper pullback.
- Valuation vulnerability: At ~83x trailing earnings, Starbucks is priced for substantial recovery. Any sign that revenue or margin recovery is slower-than-expected would likely re-rate the multiple downward.
- International execution: China remains a key part of the thesis. Slower consumer spending or missteps in scaling stores internationally could materially dent growth hopes.
- Input-cost volatility: Tight coffee futures or other commodity shocks would hit gross margins and reduce the flexibility to invest in store experience.
- Technical unwind risk: RSI near overbought and concentrated short interest means a rapid technical pullback could reset the rally and trigger stops.
Counterargument
One reasonable counterargument is that the market has already priced the turnaround: same-store sales growth of ~4% and improving traffic are in the price, and the near-term earnings trajectory may not support further multiple expansion. With a high P/E and investments pressuring margins, a patient investor might prefer to wait for a pullback toward the $85-$90 area or evidence of sustained margin recovery before allocating fresh capital.
Conclusion and what would change my mind
My stance is cautiously constructive: I rate this a tactical long with a mid-term horizon (45 trading days). The improvement in comps, credible international growth targets, and recurring free cash flow make a compelling upside case, and momentum remains supportive. But the trade must be disciplined: enter at $99.50, use a $94 stop, and target $112. If price breaks below the stop or if future quarters show deteriorating traffic, sustained margin pressure without a path to recovery, or signs that international demand is weakening, I would abandon the bullish view.
What would change my mind to a more bullish position? Clear evidence of margin expansion alongside comp improvement (i.e., comp growth translating into EPS acceleration and higher free cash flow) or faster-than-expected progress on the China rollout. What would change my mind to bearish? A miss on revenue or comps that undermines the 'traffic recovery' story, or a sustained sell-off below $94 that suggests the market no longer prices in the turnaround.
Bottom line: Starbucks still has upside, but the path is not linear. Buy with a plan, respect the technicals, and let the next two quarters decide whether this rally becomes a durable re-rating or a short-lived bounce.