The Rise and Fall of a Hot Coffee Stock

Investors love a good stock story, but they're not always happy with how the tale ends.

Jammin Java (OTC BB: JAMN.OB) has been to heaven and back over the past weeks, as the actively touted stock has fallen victim to its uninspiring fundamentals.

I warned investors about Rohan Marley's coffee company two weeks ago. There was plenty not to like about Jammin Java's valuation at the time.

A third-party shareholder was bankrolling a massive marketing campaign to promote the stock, paying a website for six months of bullish coverage and then bombarding Yahoo! Finance with ads singing Jammin Java's praises as an investment.

The art of touting alone isn't enough to irk me. What really got my goat here is that the promotional report was highly misleading.

The primary message here is that coffee companies have historically been awesome investments. The Lautner Letter pointed out how Caribou Coffee (Nasdaq: CBOU  ) was trading for $1.32 two years ago. Shares of Green Mountain Coffee Roasters (Nasdaq: GMCR  ) could have been bought for less than $3 five years ago. Diedrich Coffee was trading as low $0.21 a share before being snapped up by Green Mountain at $35 in a bidding war with Peet's Coffee (Nasdaq: PEET  ) .

The fatal flaw in this pitch is that share prices are incomplete metrics. How many shares were outstanding in each of these cases? What were the companies' market caps? What kind of revenue and profitability were these companies generating?

Jammin Java wasn't as cheap as its share price was suggesting. Its fundamentals were far worse than any of the bean smiths that the report was alluding to.

Cruel beans
I was early in my diss of Jammin Java. The stock was at $3.20 two Mondays ago. Three trading days later, the caffeinated shares would peak at $6.35. Gravity has been fierce since then. The stock opened at $1.89 this morning and traded as low as $1.62.

Now that Jammin has filed its belated annual report, we see the bloated market cap and threadbare fundamentals that I warned about earlier.

There were 70.8 million shares outstanding as of May 11, and that was before the sale of nearly 6 million more shares at $0.40 apiece to Straight Path Capital. Carrying around 76.7 million shares means that the stock packed a market cap of $487 million at its peak.

Let's think about that. Green Mountain paid $290 million for Diedrich, and that's because it was a leading third-party K-Cup provider for Green Mountain's huge Keurig single-cup franchise. Caribou's market cap is currently just above $200 million.

If Jammin Java and Marley Coffee were popular K-Cup brands it would be an interesting story at the right price, but Jammin Java is just starting to get its beans going. Unfortunately, it doesn't sell a whole lot of them.

Jammin recorded just $1,037 in revenue for its fiscal year that ended in January. That's not a typo. We're talking about the revenue equivalent of a single MacBook!

However, that's not the real shocker. Everyone knew that this was a development-stage company last year. The product didn't really begin to hit the market until after the close of its fiscal year. Distribution deals were inked in February. The product began hitting Cooking.com and Amazon.com (Nasdaq: AMZN  ) in March. A press release proudly proclaimed that it had sold out of its Kingston City Roast during a half-priced promotion on Amazon in a little over an hour.

If investors thought that all of this would add up to something special, they were in for a shock when Jammin finally filed its 10-K last week. Sales of roughly $42,000 were all that was generated through the date of the report. Again, that's not a typo. We're talking about the revenue equivalent of a single Lexus.

Jumping jolts of java
It's easy to get excited about coffee. Starbucks (Nasdaq: SBUX  ) is humming along smoothly again, and its partnership with Green Mountain validates the market for premium brews at home. The International Coffee Organization is reporting that coffee prices have roughly doubled over the past year.

Jammin Java appears to have a promising brand on its hands, but it will likely take years for the stock to grow into its current valuation.

This is ultimately a cautionary tale about the overload of hype. Jammin Java was a stock that didn't even trade some days back in January. More than 10 million shares have been exchanging hands in each of the past seven trading days. It's been a mad rush of investors buying into the flimsy hype and bolting for the exits once they realize what they've been sold.

"Enjoy the coffee but stay away from the shares until the paid promoters move on and the stock settles at a more reasonable valuation," I concluded two weeks ago.

The stock is still feeling its way down to that reasonable valuation now that the touting has been exposed.

Did you fall for the Jammin Java hype? What did you learn? Share your thoughts in the comment box below.

The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters, Amazon.com, and Starbucks. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended shorting Green Mountain Coffee Roasters and Peet's. 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.

Longtime Fool contributor Rick Munarriz isn't much of a coffee drinker, though he has had a Keurig in his home since 2007. He does not own any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (20) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 23, 2011, at 3:20 PM, mjbriggs03 wrote:

    I got in at .80/share, read all the horrible things about the stock and sold at $5.50/share. Where's the problem?

  • Report this Comment On May 23, 2011, at 3:42 PM, David369 wrote:

    Profiting from the misfortune of others? Or is it profiting from the greed and trickery of others? Either way, good job mjbriggs03!

  • Report this Comment On May 23, 2011, at 3:43 PM, TMFBreakerRick wrote:

    The problem is that you probably sold your shares to someone who bought in at $5.50 unaware that the stock was already being valued for far more than 2 of the 3 successful coffee stocks highlighted in the Lautner Letter piece.

    If you don't see the problem in a stock that has shed nearly two-thirds of its value since you fortunately cashed out last week, I will probably never be able to convince you on the pitfalls of buying into a stock that is rich in hype but weak in fundamentals.

  • Report this Comment On May 23, 2011, at 3:50 PM, YM7820 wrote:

    I knew this stock was garbage and I wanted to short it when it was about $2... I use Tradeking as my broker and they gave me problems with shorting. Is there a brokerage that would allow me to do this? This was a classic 'pump and dump' and anyone who would take 5 minutes to look at this company should have figured it out. I feel bad for people who got burned but I would figure that with all the stories out there of financial fraud that research would be a necessary part of investing.

  • Report this Comment On May 23, 2011, at 4:34 PM, TexBarrister wrote:

    The stock may be garbage but the coffee is good, really good. I did buy in to the stock and plan on just sitting on this one for a long time.

    Also, the company does business in a responsible manner. Now, I don't know if there is any link that can be proved between the stock hypster and the company, and I hope there isn't, but I do appreciate the way the company does its business -- or the way it claims it does business.

    Maybe some day it will pay off.

  • Report this Comment On May 23, 2011, at 4:38 PM, Bill2143 wrote:

    Thank you Rick for your reality check. I bought some shares just before your 1st article then sold the day after that article. Made a little then watched the stock hit double my buy price then fall lick a rock. Learned a valuable lesson thanks to you.

    Bill

  • Report this Comment On May 23, 2011, at 8:52 PM, TicoHombre wrote:

    WOW! What a story! Thanks. I'm glad I didn't have to learn this one the hard, read: "expensive" way.

    I still can't get over those financials. I've seen the hyped adds on Yahoo finance, too.

  • Report this Comment On May 23, 2011, at 9:14 PM, Boscalis wrote:

    Thank you for responsibly handling this company in your analysis. Not having an interest in the stock greatly improves the legitimacy of your analysis. Also, you do not throw out the baby with the bath water. You don't sentence a company to perdition because of the sins of the promoters, and perhaps even some of the principals but not all.

    There are good folks who read only the newswires, and not necessarily the promoters' stuff, and saw actions taken by the company to develop business. Taken together with the branding it looked like a good growth stock for a small investment, then more as it proves. But the misrepresentations are always damaging. The company must root them out, correct them, and earn its way out of the fallout.

    Here is something I believed, and I still wonder if it is the truth based on all kinds of assertions flying around about the company. Is this, or is this not Jamaican bean? Here, scroll down and read the description:

    http://www.marleycoffee.com/talkin-blues-100-jamaica-blue-mo...

    Are we to understand that Jammin Java is licensed to use the Marley Coffee tradmarks but isn't using its coffee? I understand it outsources coffee buying and roasting to Canterbury of BC, Canada (lots of big coffee comes from the NW, true?) but why it would not have negotiated to have Canterbury purchase the Marley coffees, I don't know. More research and/ or disclosure needed.

  • Report this Comment On May 24, 2011, at 8:49 AM, mjbriggs03 wrote:

    I get it rick. But I can't be blamed for the fools who hopped in at $5.50/share, that's foolish, plain and simple.

  • Report this Comment On May 24, 2011, at 9:26 AM, ctdegroot wrote:

    Wow. Didn't buy the stock, but I am just amazed that a company generating so little revenue even managed an IPO. It's like a small home-based business really and had a market cap in the hundreds of millions. Unbelievable.

  • Report this Comment On May 24, 2011, at 10:18 AM, mjbriggs03 wrote:

    I'm not exactly sure how you can feel bad for people who got burned on this. It's not like someone put a gun to their head and said "buy this." If the investor makes an uninformed buy, that's on the investor. I agree it's a problem, I just don't feel bad for them.

  • Report this Comment On May 24, 2011, at 10:40 AM, TexBarrister wrote:

    @Boscalis I have also wondered the same thing about the coffee, especially in light of the self-serving article of thestreetsweeper.org wherein they were depromoting the stock in order to make their short sale. Street Sweeper claims that the coffee is all imported and none of it is from Jamaica. However, I think the one that you pointed out in that link is all Jamaican, hence the price. In any event, as I stated before, I went ahead and bought the product (not the pricey one, just a regular bag) to see if there is potential there. It is good.

    And @Rick, let me also thank you for reporting responsibly taking into account the whole picture and not merely drafting an article which will serve your own interests.

  • Report this Comment On May 24, 2011, at 11:27 AM, Boscalis wrote:

    Thank you TexBarrister. Agreed on that weird conflict of interest problem at the website you mentioned. The notion that the writer isn't interested in pleasing its paying and or publishing up-line is absurd.

    I didn't see a smoking gun case against the coffee business principals -- Marley, Apodaca, Dooly, Lewis and now, Vaswani, whose "President of Caribbean Operations" title seems to suggest a plan to develop the Jamaican coffee sources. More information is needed on that, as so far Marley's JAMN website has videos showing his dream or plan for benefitting Jamaicans with his company's growth.

  • Report this Comment On May 24, 2011, at 11:37 AM, Boscalis wrote:

    To CTDegroot, you have a point. However, I also wonder how such over the top promotion is allowed on 'do no evil' Google Finance and Yahoo Finance and the like.

    I'm sure there are other companies that started out looking like a hobby then took off. I doubt if many.

    If this company works at it and stays the course, it has great branding, a potentially expanded coffee source (Jamaican blue mountain coffee is really nice) and the entire mystique: the music, the possibility of being a good corporate citizen in Jamaica versus just exploiting it, and a niche identity in that. They've got to get disciplined and develop their unique roasts in addition to existing Marley brands they're using, if any.

    I think JAMN could beat Caribou eventually, although I'm not sure about some of the bigger hitters. It simply has to iron out its niche and deepen it. If you ask me, I think Peets is overpriced coffee, and an overpriced stock. SBUX coffee is better roasted IMHO, and their itemized cost control and quality-enhancement process is really impressive. But it is also not a new player and people like variety. There's room for a new coffee entity. I'm wondering if JAMN is going to be determined enough to be that company.

    We'll see.

  • Report this Comment On May 24, 2011, at 12:14 PM, edjewett wrote:

    I'll have to admit that I bought in at around $2.25 with about $1900 and after everything was said and done I made a little over $1500 on the stock. I honestly did not know where the stock was going to go, but I live in Orange County, CA and I remember DDRX and what a screaming deal its shareholders got @ $35/share (I think) when they had been holding a stock @ $.21/share. Nice.

    I admit it was more a roll of the dice on my part than a sound investment decision, but I am haunted by the thought of what might have been had I owned DDRX @ $.21/share...I'd love to strike gold like that.

  • Report this Comment On May 24, 2011, at 12:53 PM, YM7820 wrote:

    I actually would have liked to buy in low and sell at $5 during the pump, then shorted it. My point is that it's hard to tell how legit this stock is, and that makes it purely speculative and more like a roll of the dice then an actual investment. I would be wary of considering this a real company- a guy named Shane Whittle is tied to this stock and he has been part of pump and dump schemes before. Google it.

  • Report this Comment On May 24, 2011, at 2:19 PM, mjbriggs03 wrote:

    @YM7820 - I agree 100%. Complete roll of the dice. And if you felt confident this was a P&D, and you got in early, you could easily make a couple thousand.

    To the uninformed investor,

    I don't feel bad for you.

  • Report this Comment On May 25, 2011, at 10:58 AM, Boscalis wrote:

    JAMN's not a "complete roll of the dice" so long as it was building its business.

    MJBriggs just wants to justify himself.

  • Report this Comment On May 31, 2011, at 6:04 PM, trollzindawoodz wrote:

    My cost is 3.02 per share...... 430 shares.. planned on selling at $6........ then I left town and forgot to look.......OOPS ! Now it's $1.94.. Think I'll hold on adn see what happens.. Could be real good if it goes back to $12........... or maybe this fool just lost the downpayment on the new Harley. Oh well it's a lessen learned. KEEP WATCHING !

  • Report this Comment On February 22, 2013, at 10:46 AM, alproco wrote:

    when will you take another look at marley coffee... it is still in it's infancy and growing exponentially, yr over year....

    the pr touting days are behind them... and they were fairly punished for it's infant mistakes (from 6 bucks to .08 cents as of 12/31/12)...

    up to .30 cents from .08.... and what about the appearance on qvc... things are changing... you should revisit .

    thanks

    al

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