Starbucks Corporation (NASDAQ:SBUX) was in the headlines this month amid reports that it explored a takeover of Chipotle Mexican Grill. The stock ranks tenth on our list of the top 10 common stock picks of billionaire Ken Fisher and Jim Cramer. Reports now suggest the deal will not go through. With the takeover talk fading, is the stock a buy in the short term? Let’s analyze.
Cramer praised the company in an October 13 post on X, writing that Starbucks “is telling a great story.” Fisher Asset Management added to its stake in the second quarter.
What Happened With Chipotle
The Financial Times reported on October 8 that Starbucks had worked with advisers on a possible offer for Chipotle. But the reports later lost steam.
Wall Street doubted the deal from the start. TD Cowen’s Andrew Charles said a large acquisition would look inconsistent with SBUX CEO Brian Niccol focus on the turnaround. Charles also told CNBC last October that Starbucks was taking the necessary steps and that its turnaround was ongoing. Click to read his full comments.
Bull Case
The long-term case for Starbucks is the turnaround and the scale behind it. Niccol joined from Chipotle in September 2024, and investors welcomed the move from the start. See what investors said at the time. Starbucks has a scale advantage because it runs more than 41,000 stores across 90 markets, so every gain in traffic or service spreads over a very large base. The company has refreshed more than 1,000 cafes and plans thousands more, and sales have improved for four straight quarters. If traffic holds, margins have room to recover. Management targets an operating margin of up to 15% by fiscal 2028.
Bear Case
The turnaround has been costly, and operating margin is still below its level two years ago. Competition is also growing. 7 Brew, a drive-thru coffee chain based in Arkansas, sells sweet, customizable drinks from small stands with no seating. It has grown from 24 stores at the start of 2023 to more than 800 and is on track to pass 1,000 by the end of the year. That puts pressure on established chains such as Starbucks. Analysts expect Starbucks sales to dip in both the current quarter and the next, by about 3.7% and 3.3%.
Some investors have already stepped aside. Madison Large Cap Fund sold its Starbucks stake in the first quarter of 2026, and its letter explains why. Check the full letter here. Interest from hedge funds held steady, with 64 funds holding the stock in the second quarter against 65 in the first, according to our database.
Valuation
Starbucks trades at about 37.6 times forward earnings, against about 15.4 for its sector. That is a premium of about 145%, and it sits about 20% above Starbucks’ own five-year average of 31.4. Growth explains part of the gap. Analysts expect earnings per share to rise about 22% in 2026 and about 20% in 2027. Sales are expected to grow only about 2.2% in 2026 and 1.4% in 2027, so the earnings growth depends on margins recovering. The forward PEG ratio, which compares the P/E to growth, is 1.92 against a sector median of 1.32. Starbucks costs more per point of growth than the typical stock in its sector.
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