A little over four years ago, I made Starbucks (SBUX -0.73%) a cornerstone of my retirement portfolio. Not only did I think the company was a good investment, but I believed it did as good a job as any multinational corporation could at meeting the needs of all stakeholders: customers, employees, shareholders, and international farmers.

And I say that from experience, as I have lived part-time on a Costa Rican coffee farm for the past nine years.

Today, my view has changed. While Starbucks still represents a great company, I am no longer as excited about the stock.

Frowning face designed with froth in a cup of coffee that's on top of a wooden table

Image source: Getty Images.

The moat is narrowing

By far the most important thing for any long-term investor to research is a company's moat. For Starbucks -- or any beverage/food vendor for that matter -- the only meaningful moat is the strength of one's brand. 

In this respect, Starbucks has performed exceedingly well: According to Forbes, Starbucks owns the second most valuable "restaurant" brand in the world, worth $15 billion, and second only to McDonald's

But whereas the power of brands was enormously influential with baby boomers and Generation X, it is losing significant steam with millennials. As former hedge fund manager Mike Alkin detailed at a conference in January 2018, this cohort -- which is larger and spends more money than previous generations -- wants something different: brands that are local, small, and -- preferably -- organic.

That simply doesn't match what Starbucks does. And it's starting to show in the company's same-store sales -- a key metric to gauge just how popular the chain is with consumers.

Starbucks presents these figures by geographic region: the Americas (A), China and Asia-Pacific (APAC), and Europe, Middle East, and Africa (EMEA). Same-store sales -- as well as their consolidated totals -- are below.

Chart of same-store sales over time at Starbucks

Chart by author. Data source: SEC filings. 2018 numbers for first fiscal quarter only.

It's crucial to note that there's nothing inherently wrong with this. Starbucks is a huge company -- it has over 28,000 store locations worldwide. It is currently adding over 1,000 locations in the APAC region alone this year. It is very hard for a company of this size to move the needle once its markets become saturated.

This is especially true when small, independent coffee roasters are becoming increasingly popular. According to Statista, the number of specialty coffee shops in the U.S. grew by 47% to 31,400 between 2005 and 2015.

The big problem: High expectations

Given these dynamics, it's surprising to see Starbucks trading for 26 times non-GAAP earnings and 28 times free cash flow. 

Usually, I'm not one to focus too much on valuation. But for me to throw valuation out the window, a company must have two key traits: a very wide moat and a history of expanding into new business ventures over time.

I consider brand strength to be the weakest of all moats, especially given the aforementioned generational shifts taking place. Furthermore, given the fact that Starbucks' attempts at growing sales via acquisitions (read: Teavana) and food sales (read: La Boulange) have failed, I'm not so optimistic.

Right now, growth in China and the Asia-Pacific region is the key behind the bullish sentiment. But even there, the company is coming up short: Last quarter, same-stores sales were up just 1% due to a 1% uptick in traffic. 

Others believe that Starbucks will improve profitability thanks to reduced rents in formerly popular malls. While I will grant that this could produce a short-term boost, the very reason behind the reduced rent -- fewer people going to malls where Starbucks locations are operated -- doesn't bode well for the company's long-term prospects.

As I said, I still believe this is a high-quality company. But at today's prices and given the industry dynamics, I've given it an underperform rating on my CAPS profile, and will be waiting for more reasonable prices before I consider buying back into it.