Starbucks stock price analysis as major risks remain

Starbucks stock price remains under pressure this year as concerns about its growth trajectory and competition continue. SBUX has dropped to $91.6, down by 21.50% from its highest level this year, meaning that it is in a deep bear market.

Competition is a major risk

Starbucks stock price has crashed as investors remain concerned about its business and the rising competition.

While its position in the US is solid, the biggest risk is in China, where new companies are gaining market share.

Starbucks has over 7,590 stores in China, while Luckin Coffee’s franchise model has seen it get to over 10,000 stores in the country. Similarly, Cotti Cofee, a company that was started a few years ago, has already grown into 6,505 stores in the country.

The rising competition from local brands is a major threat for the company because of its market share and margins. Most of these competitors have thrived because of their prices, which are often significantly cheaper than Starbucks.

Therefore, in a recent report, Caixin wrote that Starbucks officials were considering exiting the Chinese market. While Starbucks has denied the report, such a move cannot be ruled out in the future.

Chinese coffee companies are also a threat in other countries, where they want to replicate the Chinese model. For example, Luckin Coffee launched two restaurants in New York this week, and the reception was relatively strong.

The success of the New York business will likely lead to more store launches in other states. It will also push Luckin to experiment in other cities where Starbucks has a major market share.

Slow growth to persist

The most recent results showed that Starbucks’ business continued its slowdown in the second quarter. Its global comparable store sales dropped by 1%.

This decline was mostly because of its American business, where its comparable sales fell by 1% and offset by the international division that grew by 2%.

The North America revenue rose by 1% to $6.4 billion, while its operating margin crashed by 640 basis points to 11.6%.

Store count in the international market rose by 6% to 22,162, while its net revenue jumped to over $1.8 billion.

Starbucks withdrew its forward guidance. However, analysts expect that the company’s growth will remain under pressure this year. The average estimate is that its revenue will rise by 2% in Q3 to $9.3 billion, while the annual one will hit $36.9 billion.