Not the psychopath political one, but the stock.
I’ve been recommending purchase of it since $20, yet haven’t bought a share for myself. I was going through personal strife, whereby Italian bonds yields infected my brain with visions of dust.
Buying a high end, mall based, retail chain is risky, especially in its infancy. Without a doubt, the high end retailers, COH, WSM, AAPL etc, is where the money is flowing these days, as the 1% continues to denigrate the pathetic, hapless, lives of the 99%. In all seriousness, buying TEA here may lead to a swift decapitation because the stock is gaudily valued.
At 43x 2012 EPS, the stock could easily lose 50%, similar to the pinless hand grenade action in Herb Greenberg’s taste test fav SODA. Nevertheless, all early stage growth companies trade in this manner (rich premium) until they lose credibility. Right now, TEA is being given the benefit of the doubt, despite trading below its IPO price.
Here are the hard facts.
The company opened 18 new stores in the second quarter and intend to open a total of 50 in 2011. By the end of 2011, the company should have about 200 stores, a very small footprint by any standard.
They’ve partnered with Alshaya to open retail stores throughout the middle east.
To date, they have zero stores in China. It is estimated that more than 70% of Chinese favor tea over coffee, making it a prime expansion target for TEA.
Approximately 55% of their revenue derives from the sale of loose tea, while 35% comes from merchandise.
Their same store sales are increasing at a 9% clip, buoyed by a robust e-commerce platform.
Annual sales will be in the ballpark of $160 mill, a 38% increase over last year. Net income will be around $16 mill or 0.43, an increase of 78% over last year.
Here’s the kicker.
Shorts are all over this stock, just like a variety of high growth retail. People simply do not believe in the model, considering the economic vitality of America. Where I believe they are wrong, and will get bludgeoned, is the wide array of expansion possibilities for TEA. This country is ripe for TEA to expand. For more than two decades, SBUX and copy cats have flooded every city with their asshole cafes. The time has come for a change of flavour, if I might be so bold.
Aside from the international possibilities, TEA could easily KCUP their product or even develop their own machine. That’s not the reason why you buy the stock, however. Right now, just 7 million shares lie in the float. On any upside news, this stock will flame higher, fueled by the tinder that is represented in the 40% short position.
The company has $5 million in debt and total liquidity of $35 million.
It’s hard to assign a price target to TEA because it’s so young. Clearly, they can expand in the US by at least another 500 stores and start to rollout TEA cafes, similar to SBUX–if they so choose. In my opinion, the big opportunity is in China. Like GMCR three years ago, there is tremendous upside to a story like this; but you have to be patient when buying the stock. Dollar cost averaging every quarter makes sense, unless the company is proven to be incompetent.
At a minimum, I think the stock can hit $50 by the end of 2012, based on the current trends.
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