SBUX

Starbucks ($SBUX) Director's $995K Purchase Signals 'Bottom'.. But Strike and Cost Headwinds Persist

11/14/2025 00:58

Starbucks Corporation ($SBUX), founded in 1971, stands as the world's largest coffeehouse chain with approximately 38,000 stores globally and annual revenue of $36.7 billion. Operating through North America, International, and Channel Development segments, it sells diverse coffee and related products, competing alongside McDonald's ($MCD) and Chipotle ($CMG) as a leader in the consumer discretionary restaurant industry. Investors should immediately focus on a significant insider purchase by a board member, which could signal that the company's intrinsic value is substantially undervalued at current price levels. This move is particularly meaningful given the timing amid multiple headwinds facing the company. On November 10, Director Jorgen Knudstorp purchased 11,700 shares at an average price of $85, investing nearly $995,000. This represents a substantial, conviction-driven investment rather than routine portfolio adjustment. Knudstorp, former CEO of Denmark's LEGO Group, brings deep understanding of global brand operations and consumer businesses. His purchase suggests that Starbucks' current challenges are temporary while the company's long-term value proposition remains solid. This purchase starkly contrasts with the predominantly selling pattern from other insiders over the past year. While CEO Michael Conway and other executives have consistently sold shares, this director's contrarian bet draws attention. The $85 purchase price, similar to current trading levels, indicates he views market pricing as reasonable. However, Starbucks faces substantial challenges. The most urgent is the expanding unionization strike. Starbucks Workers United, representing 9,500 baristas, demands wage increases and improved working conditions. The strike beginning November 13 has spread to over 1,000 stores across 40+ cities, potentially damaging sales during the critical holiday season. The negotiation deadlock lasting over two years raises questions about management's leadership capabilities. China market struggles persist. The company's market share plummeted from 34% to 14%, prompting active consideration of divesting its China operations. Boyu Capital leads a bidding process for approximately $4 billion, with Starbucks planning to sell majority control while retaining meaningful minority stake. While this represents effective retreat from a high-potential market, it offers opportunity for efficient operations through local partners. Surging coffee bean prices create structural margin pressure. Combined 50% tariffs on Brazilian beans and climate-related supply shortages drove arabica prices up over 50%. This compressed Starbucks' operating margin from 14.4% to 2.9%. CEO Brian Niccol pursues margin recovery through efficiency improvements rather than price increases, though near-term earnings pressure appears unavoidable. Financial health shows mixed signals. Operating cash flow of $4.9 billion TTM remains robust, but current ratio of 0.76 raises short-term liquidity concerns. Total debt of $26.6 billion versus $3.5 billion cash appears manageable, though negative book value per share reflects excessive shareholder return policies' side effects. Balancing $2.48 billion annual dividends and share buybacks with growth investments requires capital allocation priority adjustment. Stock performance shows continuous decline from February 2025's $115 peak, currently trading in the $83-87 range. This represents over 25% correction from highs, suggesting major headwinds are substantially reflected. Forward P/E of 35.6x remains elevated but enters reasonable range considering growth premium. Investors should monitor specific indicators. Union negotiation resolution and strike termination would serve as near-term catalysts, while China business divestiture terms and timing become key valuation variables. Coffee cost stabilization and operating margin recovery are important monitoring points. Particular attention should focus on when quarterly same-store sales growth turns positive. Scenario analysis reveals that optimistically, union settlement and China divestiture completion could resolve uncertainties, enabling recovery to $100-110 levels. Base case expects gradual resolution within 6-12 months, supporting $90-100 range trading. Risk scenario includes prolonged strikes and consumption weakness, potentially retesting $70s. Knudstorp's substantial purchase strongly signals Starbucks' medium-to-long-term value attractiveness at current levels. While near-term difficulties are evident, global brand power and solid cash generation capability suggest current levels could offer opportunities for long-term investors. However, continuous monitoring of liquidity and debt structure remains necessary, with position adjustments depending on union negotiation and China divestiture progress.