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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.
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.