Drink, For Tomorrow We Grow
T. M. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Unemployed or not, Americans will keep drinking their coffee and tea; what else can get them through a day at the office or in interviews? As something we're all familiar with, minor addictions like these offer a comfortable way to invest; we just need to look for the right opportunity. Three stocks dealing with coffee and tea have hit 52-week lows; the question for us is these glasses are half full?
Moral Superiority Is Cheap
Coffee Holding (NASDAQ: JVA) offers a wide variety of specialty, green, and branded coffee, including organic and fair trade products that should ease your conscience as you work at being a greedy capitalist. The company is small, ($46.2 million market cap) but trading at over 50% below its 52-week high means there may be an opportunity to profit here if the valuation is low. Dramatically declining sales and a cash flow propped up by unloading receivables in April's quarterly sent Coffee Holding circling the drain.
Fortunately, Coffee Holding bottomed out in July thanks to a 20% quarterly improvement in sales over April, though a 62% drop in receivables as a portion of net cash has led to a 69% drop in net cash this past quarter. Generally, Coffee Holding's profitability is questionable; profits have been volatile year over year, with net cash rising or falling erratically. Nevertheless, the more recent quarterly trend in the company's statements is positive: over the past four quarters, net income has risen by nearly 200%.
To me, the erratic yearly returns are worrisome, especially considering the size of the company. However, with a current ratio of 3.8 and a debt-to-equity of almost 0, Coffee Holding is well-positioned to weather its continued growing pains and potentially continue its upward climb.
Breaking: Funny Nordic Names Continue to Dominate the Market
Setting aside the multitude of lawsuits and investigations being lobbed its way in recent months, Green Mountain Coffee Roasters (NASDAQ: GMCR) registers a market cap of $3.4 billion, and produces a wide variety of branded coffees along with the Keurig (which is personally a bit much for me but I guess it works for some people). P/E is just over 10, and despite a decrease in sales growth over the past two quarters, net cash has leapt from just below 0 to $493 million over the past four quarters -- a massive gain.
However, if David Einhorn is correct Green Mountain may have further to fall. Increased competition from Starbucks and Wal-Mart may have a profound impact on Green Mountain's 90% share of the single-cup coffee machine market; with an R&D budget of zero, I would be a little worried about its ability to meet those challenges as well. Any further volatility is survivable with Green Mountain's current ratio of 2.4 and debt-to-equity of 0.2; future growth, on the other hand, is up in the air—although with a PEG of 0.54, it seems that Street analysts disagree.
The Healthy Choice, But Will It Play in Des Moines?
When you'd rather chill out and avoid caffeine jitters, Teavana Holdings (NYSE: TEA) has your back with its tea and teawares. Teavana is trading at 51% of its 52-week high; with a PEG of 0.76, Teavana has begun its long, slow climb from its summer doldrums.
Nevertheless, sales have dropped the past three quarters by 68%, and 3% more recently. The slower slighter decline suggests that Teavana may be done hemorrhaging; paired with a 63% increase in net operating cash over the previous quarter, Teavana may be prepared to surge upward yet again. Nevertheless, at a PE of 30 and price-to-book of 6.9, Teavana seems fairly overvalued in the immediate.
Across the board, these companies have experienced heavy losses and disappointment in declining sales. While there are plenty of bears and bulls on Green Mountain, ultimately the accusations & legal issues regarding its book-keeping have me wary; you'll have to decide for yourself if issues like those are tangential to the fundamentals of such a large company.
On the other hand, Coffee Holding's volatility does not inspire confidence, but its assets suggest it can survive the market and continue to grow with an estimated 2012 PE of 15. Finally, Teavana is poised for growth, but the explosiveness of that growth is questionable. You should hold the company if you're willing to bet on a turnaround in sales. But, (say it with me) today's losers are tomorrow's winners.
Want to Learn More?
With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling, or the perfect entry point for an enormous rebound. You can find a recommendation for how to approach investing in the company in The Motley Fool’s new premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.
tmloyd has no positions in the stocks mentioned above. The Motley Fool owns shares of Teavana Holdings and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters and short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters. Motley Fool newsletter services recommend Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.