Starbucks: What The 3-Step DuPont Model Reveals About Valuation

Sanjay Chandiramani, CFA1.04K FollowersFollow5ShareSavePlay(14min)CommentsSummaryStarbucks is downgraded to a sell as returns on tangible assets and earnings yield have deteriorated, with valuation now well above historical norms.Applying the DuPont framework, SBUX shows notable declines in asset efficiency, profitability, and leverage, despite early signs of progress from the Back to Starbucks plan.The China joint venture with Boyu Capital reflects a shift to an asset-light model, expected to boost margins but reduce reported international revenues.With SBUX trading at a forward P/E of 41.56x and ROE well below median, current optimism leaves little margin of safety for investors. Bela Art/iStock Editorial via Getty Images Introduction & Key Takeaway We previously published an article on Starbucks Corporation (SBUX) in May 2024. At that time, we used Greenblatt’s Magic Formula* lens to evaluate the stock and issued a buyThis article was written bySanjay Chandiramani, CFA1.04K FollowersFollowI am a small business owner in Connecticut. We supply equipment and supplies to restaurants and food service establishments. My long-term goal has been to reallocate profits into a portfolio that can provide for passive retirement income for myself and my family. I am careful with my money! I didn't inherit any wealth and built up my savings through old fashioned hard work. I haven't always worked in the family business, I also worked in finance and enjoyed the process of earning my CFA charter and CIPM certificate. In the finance world, I assisted firms comply with the Global Investment Performance Standards (GIPS).I am sector agnostic for the most part with the companies that I cover. I will write about any company as long as I can understand the business. Often, the articles I write are a by product of an investment I have personally considered.Analyst’s Disclosure: I/we have a beneficial long position in the shares of SBUX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I am in the process of unwinding my long position in SBUX and expect to be fully out of the position within 30 days.Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.