Starbucks (NASDAQ: SBUX) stock kind of stinks this week. Investors reacted to the company's Tuesday earnings report (sales down 2%, and profits down 14% year over year) with a 16% sell-off Wednesday, and Starbucks stock hasn't bounced back yet -- but it might.
On Wednesday, BTIG analyst Peter Saleh made the argument that Starbucks stock, which costs about $75 today, will return to $100 in year.
Is Starbucks stock a buy in 2024?
Starbucks suffered its "weakest quarter in recent history," as Saleh admits. But the brand remains intact, is popular with its customers, and Starbucks has no competitor anywhere in the world, anywhere near its size. These factors, in the analyst's estimation, mean Starbucks stock is still a buy.
But is he right about that?
Priced at $75 a share, Starbucks costs 20.5 times trailing earnings, which sounds cheap, and is cheap historically. S&P Global Market Intelligence data show that from 2001 to 2020, Starbucks stock has averaged a P/E of almost exactly 45. This means that today, the stock costs less than half what it has historically cost -- a compelling argument for buying Starbucks stock.
Granted, the near-term picture doesn't look particularly bright. Starbucks CEO Laxman Narasimhan warned this week that 2024 earnings could be as bad as "flat" against 2023, and even in the best case, will grow only in the low single digits. Against a 20 P/E ratio, that seems rather expensive.
That being said, Narasimhan has laid out a plan to turn around the business, and told investors he expects to start seeing results before the end of 2024. If he can deliver on the turnaround, and Starbucks does go back to $100, today's depressed share price is going to look like an incredible bargain.
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Rich Smith 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.
