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Coffee stocks are going on a java-fueled bender, with Coffee Holding Co. (NYSE: JVA ) surging 75% in just five trading days; Dunkin' Brands (Nasdaq: DNKN ) up an impressive 28% year to date; and Starbucks (Nasdaq: SBUX ) pushing new all-time highs. Apparently not all ships were lifted by the tide, however, as shares of Green Mountain Coffee Roasters (Nasdaq: GMCR ) face-planted 20% in five days.
Green Mountain's crash can be explained by the threatening entrance of Starbucks new single-serve brewer, the Verismo, as well as lingering concerns about their patent expiration. Starbucks seems to be firing on all cylinders, and continues to push internationally. Dunkin' Brands continues their meteoric rise to valuations that rival high P/E poster boy Amazon, with the coffee company trading at a P/E of 111. But what about this crazy 75% pop by Coffee Holding Co?
Coffee Holding Co. surged after releasing impressive results for their fiscal first quarter. The company recorded a 120% increase in sales, which translated to earnings per share of $0.24. These results stand out against their $0.19 EPS from the same quarter last year.
According to the company's release, "The increase in net sales primarily reflects higher sales prices compared to the first quarter of fiscal 2011, and an increase in sales of green coffee."
The rise in sales of green coffee shouldn't be that surprising. These days, everyone wants to toss their hat into the brewing ring. Even McDonald's (NYSE: MCD ) , not historically known for their coffee, has made huge strides in the space with their McCafe line. This division continues to be a key driver of their same-store sales growth.
As more companies look to brew premium coffee, Coffee Holding Co. should be one of the biggest winners. The wholesale roaster sells both private-label and branded coffee, which should help them satisfy consumers as they sway between one and the other.
Furthermore the company noted "an increase in private-label and branded sales." This is great news, since they have historically been heavily reliant on the sinking ship that is Green Mountain Coffee Roasters, and an increase in private-label sales will help them diversify from that.
One reason Coffee Holdings Co. was able to record higher sales is that coffee prices remained at historical highs in the quarter, although since January they have been trending steadily downward. This is a bit of a double-edged sword, since they now must make up the sales in volume -- but this should be easier with lower prices.
Unfortunately, this remains a ridiculously volatile stock. In the last 52 weeks the company has traded as high as $30.98 and as low as $4.25. Their current price of $13.65 seems to split the difference, but is tough to justify with a sky-high P/E of 65. Unfortunately the five-year growth estimates of 16% per annum don't seem to justify the risk.
The ugly truth
It's always hard to see a stock run up 75% and feel like you "missed it," but ask any investor that held on through the August pop and drop if the brief euphoria was worth the gut-wrenching drop that came. My guess is that it wasn't.
Stocks like this will swing wildly, taking investors emotions along for the ride, and that's no way to invest for the long term. The Motley Fool continues to demonstrate again and again that meaningful wealth is created by a quality buy-and-hold strategy. The The Motley Fool's Top Stock for 2012 is a great example. It's an emerging-market retailer that has taken a page of operational excellence out of Costco's book and has a tremendous runway to take off on. You can uncover the stock today in our free report by clicking here.