July 3, 2015

Coffee Holding Company (JVA) Analysis

I posted on Coffee Holding Company JVA before because the company was trading for around net tangible asset value. It had some decent flashes of operating ok. I still see potential in the business. They just recently released results of the second quarter. Sales were up 19% year over year. Sales growth came in all the businesses which include green coffee, private label, and branded products. Gross profit was blown however because of hedging with futures contracts. Selling and admin expenses were down but because of the blown gross margin the loss on the quarter was -.33 a share.

This company could make a lot of money if a decent gross margin could be had. I crunched a couple years numbers. In 2014 they had a 14% gross margin, 2013 was 4% and 2012 was 6%. The entire industries gross margin is around 29%. Still looking for good in 2012 the company was free cash flow positive. They just launched a new product line that has had good feedback and We have also commenced sales of our Café Caribe label into Stop & Shop, a large retail grocery chain with more than 275 locations throughout New England, New York and New Jersey. So it looks like sales are probably going to do well. If they just watch margins there is potential to be unlocked.

Technically the stock at around $5 is testing some support and possibly could be beginning an uptrend. My first reaction to this possible trend is to take a 1/4 or so of a full position right here on this support. Looking at the lack of strong buy volume recently makes me think waiting for more of a confirmation of the uptrend is more prudent. Let's see what it does first. If it hits over $5.50 the uptrend is pretty clear.