When Coffee Holding Co Inc (NASDAQ:JVA) released its most recent earnings update (31 July 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Coffee Holding performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see JVA has performed. View our latest analysis for Coffee Holding
Was JVA’s recent earnings decline indicative of a tough track record?
I look at the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique allows me to analyze many different companies in a uniform manner using the most relevant data points. Coffee Holding’s latest twelve-month earnings is $1M, which, against the previous year’s level, has plunged by a non-trivial -75.69%. Given that these values are relatively short-term, I’ve estimated an annualized five-year figure for JVA’s earnings, which stands at $1M. This doesn’t look much better, as earnings seem to have gradually been falling over the longer term.
To understand what’s happening, Well, let’s look at what’s going on with margins and whether the rest of the industry is facing the same headwind. Over the last few years, Coffee Holding has, on average, delivered negative top- and bottom-line growth. As revenues fell by more, expenses have been slashed in order to sustain margins – not the most sustainable operating activity. Viewing growth from a sector-level, the US food products industry has been growing, albeit, at a muted single-digit rate of 3.73% over the past twelve months, and 7.06% over the past couple of years. This means whatever recent headwind the industry is facing, it’s hitting Coffee Holding harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that face a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase . However, if the entire industry is struggling to grow over time, it may be a sign of a structural shift, which makes Coffee Holding and its peers a riskier investment. You should continue to research Coffee Holding to get a more holistic view of the stock by looking at:
1. Financial Health: Is JVA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Valuation: What is JVA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JVA is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.