Starbucks' Stock Rise in 2026 Contrasts with Sharp Margin Decline, Reinforcing Turnaround Risks

What happened

Starbucks' stock has appreciated in early 2026, as highlighted by recent media coverage pointing to improving comparable-store sales trends. However, the company's most recent quarter reported a sharp year-over-year decline in earnings and operating margin, revealing that financial recovery lags behind top-line stabilization. The DeepValue master report details a $1 billion 'Back to Starbucks' restructuring that has compressed margins to 7.9% in FY25 while aiming to restore traffic through operational fixes. Despite early signs like flat U.S. comps and better service times, the stock trades at ~57x depressed FY25 EPS, embedding optimistic expectations for a margin rebound that remains unproven. Investors should view the price surge skeptically, as it overlooks persistent challenges such as high leverage, competitive pressures in China, and the need for sustained cost savings to justify valuation.

Implication

Investors should acknowledge that improving sales trends have driven stock appreciation, but without margin recovery, earnings growth remains uncertain, limiting near-term upside. The DeepValue report's 'POTENTIAL SELL' rating and attractive entry at $70 suggest current prices around $93 offer minimal margin of safety, especially given a P/E of 57x on depressed FY25 EPS. Key risks include the unproven success of the restructuring plan, potential for further margin erosion in China's price war, and high leverage that could strain cash flow if comps weaken. Over the next 6-18 months, monitoring U.S. comp sustainability and China joint venture economics is critical; any failure to show sequential margin improvement by FY26 could trigger a revaluation toward the bear case of $65. Until clearer evidence emerges or prices dip below $75, trimming or avoiding positions aligns with the report's assessment of a fragile turnaround embedded in an overvalued equity.

Thesis delta

The new article reinforces the DeepValue report's thesis by highlighting the dichotomy between improving sales and declining margins, but it does not shift the core investment call. It underscores that the stock's rise is based on superficial optimism, ignoring the deep-seated financial pressures and execution risks already detailed in the report. Therefore, the thesis remains unchanged: Starbucks is a high-risk turnaround story with limited upside at current prices, requiring concrete margin recovery before becoming attractive.