The stock of Coffee Holding Co (NAS:JVA, 30-year Financials) appears to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $5.4 per share and the market cap of $30.8 million, Coffee Holding Co stock is estimated to be significantly overvalued. GF Value for Coffee Holding Co is shown in the chart below.
Because Coffee Holding Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.4% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Coffee Holding Co has a cash-to-debt ratio of 1.68, which which ranks better than 69% of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Coffee Holding Co is 7 out of 10, which indicates that the financial strength of Coffee Holding Co is fair. This is the debt and cash of Coffee Holding Co over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Coffee Holding Co has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $67.6 million and earnings of $0.18 a share. Its operating margin is 0.68%, which ranks worse than 74% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Coffee Holding Co is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Coffee Holding Co over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Coffee Holding Co’s 3-year average revenue growth rate is in the middle range of the companies in the industry of Consumer Packaged Goods. Coffee Holding Co’s 3-year average EBITDA growth rate is -20.8%, which ranks worse than 87% of the companies in the industry of Consumer Packaged Goods.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Coffee Holding Co’s ROIC is 0.89 while its WACC came in at 8.76. The historical ROIC vs WACC comparison of Coffee Holding Co is shown below:
In closing, the stock of Coffee Holding Co (NAS:JVA, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 87% of the companies in the industry of Consumer Packaged Goods. To learn more about Coffee Holding Co stock, you can check out its 30-year Financials here.
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