Why Teavana Shares Dropped, Popped, and Flatlined

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Sort of makes you wonder what they're really putting in the tea over at Teavana (NYSE: TEA  ) ! The stock rapidly fell more than 5% following the start of trading, quickly rallied to climb 11% above its starting point, and now sits flat on the session after reporting its second-quarter earnings results.

So what: For the quarter, Teavana recorded a 38% increase in sales to $43.1 million as it opened an additional 105 stores from its year-ago reporting period. Its adjusted profit came in at $0.03, $0.01 ahead of analyst's expectations. Looking ahead, Teavana sees full-year EPS of $0.53-$0.55 including costs, which does seem to be causing confusion with the Street's forecast of $0.57. As my colleague Rick Munarriz noted this morning, backing out its Teaopia-related losses, and that would add $0.03 to the above range and put it right on par with consensus estimates.

Now what: As someone who currently has an underperform call on Teavana in his CAPS portfolio, I'm not surprised to see the apathy exhibited toward the stock. At one point, Teavana's metrics were up in the stratosphere. However, I must admit that its expansion despite increased competition from Starbucks' expanded Tazo offerings, and the fact that it's valued at only 20 times this year's earnings (assuming an adjusted mid-point of $0.57), is making me give serious thought to closing my underperform rating with a gain. If I were you, I'd keep a close eye on Teavana moving forward.

Craving more input? Start by adding Teavana to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Starbucks and Teavana. Motley Fool newsletter services have recommended buying shares of and writing covered calls on Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


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