1 Growth Stock Down 25% to Buy Right Now

Starbucks (NASDAQ: SBUX) has been a great stock for investors to own over the years, but more recently the stock has struggled and is down about 25% from its 52-week high.

However, the coffee giant is still in growth mode, and the recent underperformance represents a great time for long-term investors to purchase the stock. Let's examine the reasons behind the stock's struggle and the potential for it to rebound.

Why is Starbucks stock down?

Starbucks' U.S. operations have been performing quite well. For its fiscal year ended October 2023, the company saw its North America revenue rise 13.7% to $26.6 billion, while its North American same-store sales climbed 9%. That strength continued in its fiscal first quarter. North American revenue rose 9%, with same-store sales up 5%.

However, Starbucks has seen challenges in its second-largest market of China. Its same-store sales rose only 2% in fiscal 2023, as people in the country struggled to come out of COVID-related lockdown. Same-store sales rebounded to a 10% in fiscal Q1, but the company had to resort to promotions and discounts to draw in Chinese customers, as evidenced by the 9% decline in average ticket it saw.

Increased competition in China has worried investors. Luckin Coffee surpassed Starbucks last year as the largest coffee shop in the country, while selling its coffee at much cheaper prices. Upstarts such as Cotti Coffee are also making inroads, while tea house Tea'stone is giving the tea-drinking country an upscale experience based around the nation's favorite hot beverage.

Iced coffee drink on a table.

Image source: Getty Images.

Starbucks' growth opportunities

Despite its issues in China, Starbucks remains very much in growth mode. It plans to expand its global footprint to 55,000 stores by 2030, with 35,000 of those locations outside of the U.S. At the end of 2023, the company operated 38,587 stores globally and had 20,656 locations outside of North America. So it still has a lot of store growth in front of it despite its large size.

China still remains a big part of its plans, with the coffee shop operator looking to have 9,000 stores in the country by the end of 2025. It ended 2023 with just under 7,000 locations in China.

Starbucks also isn't sitting still in China. It's looking toward local innovations to help drive growth. In February, for example, it introduced pork-flavored coffee in the country ahead of Spring Festival. The company has also recently opened a Coffee Innovation Park and an Innovation and Technology Center in China to help drive product and technological innovations in the country.

Outside of expansion, Starbucks is also looking to drive $3 billion in cost efficiencies over the next three years, or about $1 billion a year in savings. About $2 billion of the savings will come from cost of goods sold, and the rest from things like staff and scheduling efficiencies. It will then look to reinvest those savings into new store growth and remodels.

The combination of store growth and cost savings should lead to strong continued earnings growth from the company in the years ahead and lead to a higher stock price.

An attractive valuation

Starbucks currently trades at around a 21.5x forward price-to-earnings (P/E) ratio, which is quite attractive given the growth opportunities the company has in front of it. It is looking to grow its store base by over 42% by 2030, while growing its comparable-store sales in the mid-single-digit range. When combined with its cost-saving initiatives, earnings should grow even faster.

SBUX PE Ratio (Forward) Chart
SBUX PE Ratio (Forward) data by YCharts.

If China begins to recover -- and the country's Q1 GDP growth did show improvement -- Starbucks could be on track to surpass current expectations this year. Regardless, though, the company has a long runway of growth in front of it and is now trading at one of its most attractive valuations in years. This looks like a good time to scoop up some shares of this growth stock.

Should you invest $1,000 in Starbucks right now?

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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