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A Pot of Coffee Stocks

By Alyce Lomax – Updated Nov 11, 2016 at 7:12PM

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Pour yourself some java and contemplate some coffeehouse companies.

Starbucks (NASDAQ:SBUX) may be in a league all its own, given investors' rapt attention to its triumphs and travails, but there are, of course, other caffeinated contenders. Caribou (NASDAQ:CBOU) and Peet's (NASDAQ:PEET) both reported earnings last week, and as always, they make for an interesting comparison to Starbucks (and each other).

Caribou's malaise continues. The company's press release gave two bulleted highlights that looked unusual in the grand scheme of things: Flat same-store sales and "other sales" increased 84% year over year. Highlights like that certainly make one suspect some bad news is forthcoming.

In fact, Caribou's fourth-quarter net loss widened considerably to $15.1 million, or $0.78 per share, compared with a net loss of $2 million, or $0.10 per share, at this time last year. Net revenue increased 5.2% to $70.2 million, but that increase is primarily related to that increase in "other" sales to commercial customers, as well as franchise fees, royalties and product sales to franchisees.

Not surprisingly, Peet's fared far better than Caribou. Its net income increased 53% to $3.3 million, or $0.23 per share. Revenue increased an impressive 17.7% to $70.9 million.

In November, I commented on the coffee wars that these companies are engrossed in, and I don't have a different takeaway now than I did then. Caribou continues to be the stock I feel least confident in, and while Peet's is competing admirably, the rising cost of commodities like coffee and dairy is rough on all these players. (Meanwhile, privately held Tully's recently decided to withdraw its IPO.)

It's nice to be a specialty coffeehouse player, to be sure, but Starbucks' years of success certainly attracted attention from fast-food heavyweight McDonald's (NYSE:MCD), and Dunkin' Donuts is no slacker in the coffee field, either. And of course, Green Mountain Coffee Roasters (NASDAQ:GMCR) shows up in all kinds of places; it's stealthy like that, appearing in gas stations, some McDonald's restaurants, and in single-serving personal coffee makers, to name a few venues.   

Looking at Starbucks, Peet's, and Caribou, Starbucks looks the most reasonable to me, trading at 21 times earnings and sporting a PEG ratio of 1.01. Peet's looks like the premium-priced stock, with a trailing P/E of 45. (Its PEG ratio is 1.46, which isn't outlandish, but still isn't as appealing as that of Starbucks.) And of course, Caribou's continued struggle with profitability says: Enjoy the coffee, but pass on the stock.

Another shot of Foolishness:


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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$235.64 (2.12%) $4.90
Starbucks Corporation Stock Quote
Starbucks Corporation
$85.78 (1.80%) $1.52
Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.

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