Starbucks Vs Dunkin Donuts: Which Stock Is Best?

The best investment ideas can come from anywhere – including your morning coffee. However, while you might think that Starbucks (NASDAQ: SBUX) and Dunkin are pretty similar, there are quite a few things that set the companies apart – other than the coffee and pastries they serve.

Is Dunkin Stock Worth Buying?

Dunkin, acquired by Inspire Brands in 2020, is a coffee and doughnut chain with a strong brand and a growing franchise business model. It is no longer a publicly traded company, so you cannot buy shares of it currently. With that said, if it does get spun off again and become an investable firm in the public markets, there are reasons to be bullish:

  • The coffee and breakfast market is still growing, and Dunkin is well-positioned to capture a share of this growth.
  • Dunkin has a strong brand and a loyal customer base.
  • The company is expanding its franchise business model, which will help to drive growth.
  • Dunkin is investing in new products and marketing initiatives, which should help to boost sales.

With that said, the coffee wars are real, and Dunkin faces stiff competition from Starbucks, its arch-rival. The company also faces uphill sledding from the lack of traction Baskin Robbins has had in growing revenues.

So while Dunkin has a strong brand and a growing franchise business model, it is perched in a very competitive sector and will need to elbow its way forward to keep market share.

Still, upsides on the horizon for Dunkin include:

  • Expanding its digital presence through mobile ordering and payments, as well as its loyalty program.
  • Investing in new products, such as cold brew coffee and avocado toast.
  • Geographical expansion through opening new stores in China and India.

Should You Buy Starbucks Stock?

Starbucks (NASDAQ: SBUX) is practically synonymous with coffee, but the popularity of coffee doesn’t necessarily make the coffee company a a good investment.

The company’s brand reputation took a hit following news of bias among some store operators, and its same-store sales growth has been lagging behind competitors like McDonald’s.

However, there are some reasons to be optimistic about Starbucks’ future. The company is focusing on foreign markets, where it has seen strong growth. Starbucks has also signed a deal with Nestle that will help the company market its products in new markets.

The company does have a bunch of tailwinds, including:

  • 13 consecutive years of hiking its dividend, which currently stands at 2.08%
  • A strong return over the past 5 years, up 116%.
  • Revenues have climbed from $24.7 billion in 2018 to $32.5 billion in 2022
  • Operating income the past few years has been hovering around $5 billion

While price momentum and profitability have been in Starbucks’ favor over the past few years, cash flow, growth and relative value have all been less than stellar. It currently trades at a high price/earnings multiple of over 32x which suggests the company is ripe for a correction and may well be overvalued.

Dunkin Stock Vs Starbucks Stock

Dunkin is growing its presence in the United States while Starbucks keeps its eye on foreign opportunities.

Starbucks has an experienced and somewhat conservative management team in place. If the company is pursuing this type of aggressive growth, it is not impulsive. The stock could be a good long-term play – possibly even fill the profile of a growth stock – but that’s only as long as the company can keep its brand cache and clout.

At the same, Dunkin is gaining momentum – and people like it. LikeFolio reports that Consumer Happiness levels are higher for Dunkin than for Starbucks and, to date, the company has not had to close any of its stores for sensitivity training. Also, products at Dunkin are cheaper than similar products at Starbucks. If the United States sees another recession, some people might conserve money by switching up their morning brews.

Both companies present a strong investing potential. Keep an eye on US consumer views on Dunkin and foreign acceptance of Starbucks, especially in China.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.