Starbucks (SBUX) made a splash with its latest earnings report that boasted a 4% jump in same-store sales and a fiscal first-quarter profit that more than tripled over last year. And as the coffee giant looks to continue its growth in the months ahead, buying out smaller coffee shops and roasters is a very good possibility.
One of the top stocks on Starbucks’ radar right now is likely Coffee Holding Co. (JVA), a wholesale roaster serving the U.S. and Canada. Though a relatively small outfit (this microcap has a market size of just $22 million and annual sales of only $55 million), this Staten Island-based company provides whole beans, grounds and instant coffees sold under 50 different names. The products are roasted, flavored and packaged to order.
This company has yet to report Q4 numbers — and since it’s such a small coffee stock that isn’t covered by the Wall Street bigwigs, there aren’t really any analyst expectations to worry about topping. However, when JVA does report its numbers I expect them to show continued growth. In the third quarter, the company posted a 45% jump in net income compared to the same quarter a year ago on sales growth of 6.5%.
After those third-quarter numbers were released, President and Chief Executive Officer Andrew Gordon said that a focus on margins and brand loyalty were the principal causes of this positive growth trend. “We continue to focus on higher margin business as well as customer relations as our philosophy is that strength in those two key areas will ultimately give us the foundation for an improved stock price and greater shareholder value,” Gordon said.
I expect that focus to pay off for JVA again in its next earnings report. And I expect that this coffee stock will start raising more eyebrows at Starbucks with its strong results. As SBUX looks beyond its counter sales at branded stores and tries to grow institutional sales through partners like Burger King and retail sales at supermarkets and food stores, Coffee Holding Co. presents itself as an attractive buyout target.
One final word of caution: If you look to buy shares of JVA, however, please protect yourself by placing a limit order within 25 cents of the previous day’s close. Placing a regular market order could harm both you and other investors by sending shares of this micro-cap stock soaring.
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