Starbucks Corporation (NASDAQ:SBUX) is finally getting customers back through the door. That is the good news. The problem is that the company still has a lot to fix. And at this point, the bigger concern may not even be the business itself. It is the price investors are paying for the turnaround. But should investors stay away from Starbucks until its turnaround showed up?
Starbucks is improving, but the stock already seems to be assuming that the recovery will go pretty much according to plan. The latest quarter tells a more complicated story.
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Starbucks Is Still Cleaning Up Its Own Mess
Starbucks Corporation went into the past year with a customer experience that had clearly deteriorated. Stores were slower, the menu had become unwieldy, and customers were not coming in as often. The company had lost some of what made the Starbucks experience different in the first place.
CEO Brian Niccol came in with the “Back to Starbucks” strategy, which essentially meant getting back to basics. Starbucks has been putting more workers in stores, simplifying operations, and trying to make its coffeehouses feel like places where customers actually want to spend time again. So far, that effort is showing results.
In fiscal Q3 2026, global comparable-store sales jumped 7.9%, while comparable transactions increased 4.2%. U.S. comparable sales also rose 7.9%, with transactions up 4.2%. That is a pretty meaningful improvement in customer traffic. Revenue, though, fell 1% to $9.3 billion, partly because of the China transaction.
The catch is that bringing customers back is costing Starbucks a lot of money. The company has been spending more on labor and store improvements, and that has taken a bite out of margins. Global operating margin was 12.9% in the latest quarter, compared with 15.8% two years earlier. In North America, the decline has been even more noticeable, with margins falling to 13.6% from 21%. That is an important part of the Starbucks story. Sales are improving, but the company is having to spend heavily to get there.
And then there are the store closures. Starbucks has already closed hundreds of locations, cut corporate jobs, and announced plans to shut roughly 250 more stores in North America. The latest restructuring is expected to cost about $300 million. The company had already recorded nearly $300 million in fiscal 2026 restructuring charges through the first three quarters, on top of another $115.9 million from its earlier restructuring plan.
China is another piece of the puzzle. Starbucks Corporation agreed to sell 60% of its China retail operation to Boyu Capital at an enterprise value of about $4 billion, while keeping the remaining 40%. The move shows how difficult the Chinese market has become for Starbucks, particularly as cheaper local players such as Luckin Coffee continue to expand.
Labor issues have not gone away either. Starbucks still has not reached a first contract with its U.S. barista union, while shareholder groups are pushing for the company to restore a dedicated labor-relations committee. So there is no single problem weighing on Starbucks. The company is trying to fix its stores, rebuild margins, restructure its workforce, deal with China, and sort out its relationship with employees, all at roughly the same time.
Also Read: Starbucks (SBUX)’s Corporate Layoffs Could Strengthen its Turnaround, But Risks Remain
Then There Is the Stock Price
This is where things get a little uncomfortable for investors. Starbucks has a market capitalization of roughly $108 billion, while the stock’s trailing EPS is $1.73 and a trailing P/E of about 54.8 times. The dividend yield is around 2.6%. The trailing P/E is not the best way to look at Starbucks right now because restructuring costs are weighing on earnings. Forward earnings give a cleaner picture. Recent estimates put the forward P/E at around 31 times. Btw, one of its peers is trading at a much lower multiple. See here.
Even 31 times forward earnings is not cheap. It works out to an earnings yield of only about 3.2%. Meanwhile, the 10-year U.S. Treasury yield is around 5.2%. That comparison matters. A Treasury offers a higher yield without the same business risk. Starbucks, on the other hand, needs to deliver meaningful earnings growth to make that 31x multiple worthwhile.
In addition, there is still plenty that could go wrong. Management expects fiscal 2026 non-GAAP EPS of $2.55 to $2.65, revenue to be flat to slightly higher, and the non-GAAP operating margin to come in above 11%. Those numbers show progress. But they do not exactly scream high growth. That leaves Starbucks investors in an interesting position. If the turnaround keeps gaining momentum, traffic improves further, and the extra spending on labor and stores eventually translates into better margins, the current valuation could prove manageable.
Conclusion
Starbucks Corporation still has a huge brand, a loyal customer base, and plenty of room to improve profitability. However, there is another possibility. The company could actually fix the business and still disappoint shareholders.
If sales improve but margins take years to recover, earnings growth may not be strong enough to support a valuation above 30 times forward earnings. In that case, the turnaround would be real, but the stock could still struggle. That is what makes Starbucks different from a simple turnaround story. The business is getting better. The question is whether it is getting better fast enough to justify what investors are already paying for it. Right now, that is arguably the biggest problem with Starbucks stock.
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This article is originally published at Insider Monkey.
