With Shares Down 42%, Is Now the Time to Buy This Restaurant Stock?

It's been a tough past three years for Starbucks (NASDAQ: SBUX) shareholders. The stock is down 42% from its mid-2021 peak and knocking on the door of new multi-year lows. Another round of disappointing quarterly results could easily drag shares back to prices last seen at the onset of the COVID-19 pandemic.

Veteran investors know the time to step into quality stocks is when they're "on sale." And there's certainly no denying that Starbucks stock is deeply discounted here. Just because a stock's cheap, however, doesn't inherently make it worth owning.

Here's what you need to know about Starbucks' foreseeable future, and whether or not it's a buy at this time.

Starbucks coffee turns cold

Starbucks is the leader of the prepared coffee market, operating 38,951 stores all over the world (16,600 of which are located within the U.S.). The company has been credited with mainstreaming coffee into an away-from-home treat, and it built an entire restaurant empire around that premise. Despite plenty of competition, none have duplicated Starbucks' success.

Yet, even the best of businesses can hit a wall from time to time. During the fiscal 2024 second quarter (ended Mar. 31), for instance, Starbucks' same-store sales slipped 4% thanks to a 6% dip in total transactions. Moreover, after missing analysts' revenue estimate of $9.1 billion with a top line of less than $8.6 billion, the company dialed back its full-year sales guidance -- again.

It's unusual weakness from the usually reliable Starbucks. What gives?

Several headwinds are blowing, not the least of which is inflation. As CEO Laxman Narasimhan conceded during Starbucks' second-quarter earnings call, "In this environment, many customers are being more exacting about where and how they choose to spend their money." Notably, the company's less frequent customers are cutting back dramatically on their visits.

Then, there's another possibility: Starbucks may simply be missing the mark with today's consumers . As former CEO and major shareholder Howard Schultz commented following last quarter's lackluster results, "The go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation that inspires partners and creates differentiation in the marketplace, reinforcing the company's premium position." Schultz added that the company should be more focused on the customer experience and less worried about data.

It may seem like a lot, but all of it can be fixed. The question is: Will it be fixed anytime soon?

Probably not.

Big (and complicated) problems

Starbucks is hardly doomed. Its problems, however, are as complicated as they are significant.

Take its product lineup as an example. Innovation has generally drawn a crowd, which is why Narasimhan is calling for more of it. Starbucks recently introduced a boba-based beverage , for example, along with iced energy drinks. Both have been well-received, too. After a few decades' of innovation, though, there's not a lot of "new" in this space left to tap. It's a reality Schultz may have been thinking about when he stressed the importance of "coffee-forward innovation," suggesting a return to proven, coffee-based basics may be in order.

The marketplace may have also changed in a way that simply doesn't favor Starbucks the way it used to.

Chief among these changes is a preference for more authentic, personal interactions like those offered by hypercasual coffee drive-thru chain Dutch Bros . While Starbucks has historically offered a polished and professional experience in uniformly outfitted stores, some people are falling out of love with the impersonal premise.

Other challenges include the way people purchase their coffee and Starbucks' inability or unwillingness to fully adapt. While Starbucks' app-based ordering has been around for a while now, it's exploded in recent quarters. But too many stores aren't staffed well enough to fill these online/pickup orders. Wait times of up to 40 minutes have been reported in some locales. Although Narasimhan has worked as a barista in Starbucks stores once a month to better understand the operation, the company didn't address these challenges sufficiently during April's earnings call.

As for the effect of inflation, the company's always looking for ways to cull costs and so are consumers. Until there are greater signs of strength across the economy, don't be surprised if same-store sales growth remains tepid -- if not negative -- for a while.

No, now's not the time to buy Starbucks stock

Waiting until the company is firing on all cylinders again to step into the stock likely means you've already missed out on a great deal of upside. It's absolutely possible to wait too long to take action.

This is one of those cases, however, where the regrouping that's needed isn't apt to materialize quickly. Revamping the menu with more basic beverages at a value-oriented price and bridging the gap between online orders and store throughput will take time.

As Schultz himself said, "[T]here are no quick fixes." Investors must decide for themselves if they're comfortable holding Starbucks stock, while uncertainty remains high. I suggest waiting for at least a few clear signs a successful turnaround effort is taking hold.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy .