Coffee stocks have been hot lately, maybe even a little too hot. Wouldn't it be great to find the next Green Mountain Coffee Roasters (Nasdaq: GMCR) before it becomes a 10-bagger? Coffee isn't the only beverage that's brewing profits for investors.
Shares of Teavana Holdings (NYSE: TEA) are fresh off the press after going public last month. The company has been posting some pretty strong numbers and has been profitable since 2008. Total revenue has increased from $33.8 million to $124.7 million over the last four years, representing 38.6% compound annual growth. Over the same time frame, both gross and net margin have been steadily expanding. Gross margin has risen from 52.8% to 62.9%, while net margin improved from negative 4% to positive 9.6% in the year ending January.
The company estimates that size of the domestic tea market at $5.2 billion, leaving plenty of opportunity for growth. Teavana's retail footprint is still fairly small with only 161 locations in the U.S., and it is targeting at least 500 stores by 2015, including 50 in fiscal 2011.
Comparable-store sales growth has almost tripled over the past three years, from 3% to 8.7%. This has helped drive up sales per gross square foot from $866 to $994. And with almost no debt, Teavana certainly looks a lot more attractive than fellow recent IPO, Dunkin' Brands (Nasdaq: DNKN), which is burdened with $1.9 billion in debt.
Steep international opportunities
Teavana does not have any substantial operations outside of the U.S., and interestingly its only international franchise locations are in Mexico, which has even lower per-capita tea consumption than the U.S. The global tea market, excluding the U.S., is estimated at $51.4 billion, which would significantly broaden the potentially addressable market by nearly tenfold.
Per-capita tea consumption in Asia and Europe is much higher than in the U.S. and Mexico, so that would seem to be the next clear direction for international expansion, since Teavana has no locations in the Eastern hemisphere. However, the company hasn't disclosed any specific plans yet.
Teavana's founder, Andrew Mack, started the company in 1997 and currently serves as chairman and CEO. He still retains roughly 57.9% of outstanding shares, which may not be considered particularly shareholder-friendly.
Teavana's market cap currently sits right at $1 billion, with a P/E of 77.4 . This valuation may seem a little rich for some, but it looks just right to me when looked at within the context of the company's strong fundamentals and growth potential.
