Here's Why Some Investors Have Growing Expectations for Starbucks Stock Right Now

Returns for Starbucks (NASDAQ: SBUX) stock are completely flat over the last five years, as of this writing, but some investors believe better days are ahead. In one example, asset manager Polen Capital bought a stake in Starbucks during the first quarter of 2025, with management saying that it believed in the turnaround plan from new CEO Brian Niccol.

For his part, Niccol was instrumental in improving operations at Yum! Brands' Taco Bell and at Chipotle Mexican Grill. Former CEO Howard Schultz successfully led Starbucks for decades but the company has struggled to thrive without him. That's why it turned to Niccol for help less than one year ago.

On April 29, Starbucks reported financial results for its fiscal second quarter of 2025, showing just a 2% year-over-year uptick for net revenue as well as an alarming 50% drop for its earnings per share (EPS). Niccol admitted that "Q2 results are disappointing, especially as measured by EPS."

However, Niccol and certain investors remain optimistic in the plan to get Starbucks moving in the right direction again -- a direction that will hopefully increase shareholder value.

Here's Starbucks' turnaround plan

The plan for Starbucks has four parts. But I believe it can be encapsulated with a single sentence: Customers want fast and friendly service in an inviting coffeehouse atmosphere and management intends to give it to them.

I'm sure that some think that this has always been the plan for Starbucks. And perhaps this is true. That said, not everything at Starbucks reflects this lately. Many orders in the morning have been so slow that customers stopped waiting and left. The company has also emphasized to-go orders over the in-store experience. And certain processes have become overly cumbersome for employees.

When one considers this turnaround plan, it doesn't come across as overly ambitious. This is something that Polen Capital pointed out and it's one reason it likes the plan: It's achievable. But Niccol brings more to the table than just a turnaround plan.

Niccol is also looking to implement the plan in an efficient way. One big example of this regards Starbucks' real estate efforts. Some recent builds and remodels might have been quality work, but they were too expensive and didn't have an attractive return on investment. Management is scrapping the projects it inherited and is looking for cheaper ways to improve its coffeehouses.

While admitting his disappointment with Starbucks' Q2 financial results, Niccol went on to say, "We made a lot of progress and have real momentum." He added, "We know we can return the business to strong profitable growth."

What does this mean for investors?

Looking at the valuation today from a price-to-sales (P/S) perspective, Starbucks stock trades close to its lowest valuation in over a decade at about 2.5 times trailing sales, as seen in the chart below.

SBUX PS Ratio data by YCharts

I point out the valuation not to suggest that Starbucks stock is undervalued -- indeed, it could be fairly valued. But I believe it's fair to say that the market has already discounted this stock due to its lackluster performance. And that is a much better starting point for investors today than if the stock were overvalued.

In other words, the valuation risk for Starbucks stock today is low. Therefore, what really matters is execution: Can management drive better profitable growth than the team that came before it?

Starbucks' Q2 financial results showed the opposite of what shareholders want to see. Growth was almost nonexistent and profits fell big-time. That's less than ideal and suggests that investors would need to take a leap of faith when buying the stock today.

That said, there is reason to believe in Starbucks' ability to turn things around. The company has had rough patches in the past and recovered. And Brian Niccol has an enviable track record in the restaurant world. That certainly counts for something.

Moreover, there are glimpses here and there that things are indeed going according to plan. For example, Starbucks' management just tested a new ordering system. And at test locations, the average wait time dropped by about two minutes. As mentioned, wait times have been a recent problem and have led to missed opportunities. This is just one sign that the company could be on track.

If Starbucks is on track, then Niccol's promise of creating shareholder value could ultimately prove true. The company believes it can open many thousands of new locations long-term and it thinks profit margins will improve. In conclusion, now may be a good time to buy some Starbucks stock.

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Jon Quast has positions in Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.