(By Rich Bieglmeier) Coffee stocks could be percolating again. Last week Green Mountain Coffee Roasters Inc.
) popped on better-than-expected quarterly earnings; however, management revised their forward guidance much lower than the street expected. GMCR's new view of 2013 earnings of $2.55 to $2.65 per share falls, well short of the $2.97 consensus.
While Green Mountain's news looks bad on the surface, the stock rocked, probably on the basis of "it's not as bad as expected or could have been."
GMCR's news sucked Coffee Holding Co.Inc.
) into its wake. JVA ranked third in iStock's weekly accumulation list with investors nearly buying 4% of the small-cap coffee stock's market-cap.
On sizeable volume, Coffee Holding Company's stock priced boiled over, jumping from $6.16 to $7.60 from last Thursday's to Friday's close. That's a heck of a move. The question is how much is left?
According to iStock's take on JVA's stock chart, there is a fair amount of resistance at $8. If the stock can work its way higher, then we can see the price challenging $10 to $10.50.
We like the fact that consumer goods company's MACD line vertically accelerated above the zero line and that the 12, 26, and 50 –day averages are moving higher in bullish order. Typically, it's an arrangement that foreshadows more gains to come.
Although, with a move as big as last week's spike, we half expect the stock to settle back before its next move higher. On the downside, there is plenty of support for the share price at or near the 12-day moving of $6.60. Friday's gains filled in a June gap down from $7.25 to $6.14. We anticipate that $7.25 would provide the initial level of support before falling to the 12-day mark.
Taking a longer-term perspective, JVA seems fairly priced. The stock trades at 10.41 times forward earnings while Wall Street analysts believe profits will grow by 85% in 2013, from 41 cents in 2012 to 76 cents in 2013. A forward P/E of 10 is a major discount from the street's outlook.
Compared to other coffee stocks, JVA forward P/E is about half the industry's current price-to-earnings multiple of 18.30. There is also a wide gap between JVA and its peers with some of iStock's other favorite metrics.
Coffee Holding trades for just 27 cents for every dollar per share in revenue, meanwhile the group trades for 77 cents. Additionally, JVA's PEG ratio of .94 is more attractive than the average java stock's PEG of 1.72.
Finally, if the price does break the magic $8, then things could heat up quickly as 22.50% of the float (stock available for purchase) is sold short. Breaking a key level of resistance would surely worry some short-sellers into covering their positions.
Overall, iStock believes Coffee Holding Co.Inc. (JVA) offers a compelling mix of short-term technical positives and longer-term value; however, we would consider waiting for a pullback to $7.25ish to pour new money into the stock.