...and Sip on Caribou Coffee
04/07/2006 12:00 am EST
"It’s time to ride with Juan Valdez!" jests Eric Roseman. "Coffee prices will continue to climb along with the rest of the Breakfast Club—sugar, orange juice, and cocoa over the next few years." Here, he looks at Caribou, the #2 player in the gourmet market, after Starbucks.
"Last summer, Minneapolis, Minnesota-based Caribou Coffee (CBOU NASDAQ) went public. Almost immediately, the stock rallied to over $16 and then spent the next nine months drifting lower until it hit a low of $8.05 this winter. Once again, what struck my interest in March was the cluster of directors buying the stock with cash— usually a very bullish sign.
"Caribou Coffee was founded in 1992 and is the second-largest gourmet coffeehouse in the US after Seattle-based Starbucks. CBOU has 395 coffeehouses, including nine licensed locations in 15 states. I even know several readers who enjoy Caribou Coffee regularly on the way to work. As you probably know by now, coffeehouses are ‘The Big Thing’ not only in the US and Canada, but increasingly, in Europe and Asia, too.
"I even spend time at the local Starbucks in Montreal because it's next door to my apartment, offers a rich, dark blend of Colombian coffee, and it's a convenient meeting place for my friends and I to get together every Sunday. People love congregating at coffeehouses today; and if you bought Starbucks after it went public in 1992 you'd be sitting on a pile of cash right now. Over the last 14 years, Starbucks' stock has risen almost nine-fold!
"After discovering the story behind Caribou Coffee, I decided to dig deeper and find out exactly why this stock is so cheap after going public in 2005. It turns out that despite record sales last year CBOU has struggled with costs, posting a loss in its latest quarter. That immediately turned me off; but then I noticed that three corporate insiders purchased $273,555 worth of Caribou stock with cash since February at prices ranging from $8.19 to $8.43 per share. That's when my alarm bell rang.
"CBOU has a very strong balance-sheet with no short-term debt on its books and $7.6 million in net. People are drinking more coffee than ever and it doesn't matter how high Juan Valdez raises his prices; nothing will stop a coffee-lover. The stock trades at a superb price for new money. Any price below $10 per share is a great bargain. I expect good things from CBOU this year as earnings turn around, coffee prices rise, and its stores draw even more traffic. Plus, the icing on the cake remains the cluster of insiders accumulating shares below $9 last month. We're still buying CBOU up to $10."