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Can Anyone Explain Deidrich Coffee?

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June 30, 2009 – Comments (7) | RELATED TICKERS: DDRX.DL

Had you invested $10,000 in Diedrich's Coffee two months ago, you'd be sitting on $640,000 or so. 

Diedrich's closed at $0.38 on March 25th, and then promptly took off. And it hasn't stopped.

But why?

Well for starters, this company was tremendously undervalued as a penny stock.  It hit a low of $0.21, making its P/B at the time a paltry 0.11. 

But I'm not buying it at today's $23.49 closing price. I think it is far too risky.

They had one good quarter in the last 5 years.  It happened to come in the middle of a Recession/Depression, so that get an A+ for that.

But could you have really seen that coming?  Nah.  I have a feeling that a return to mediocrity or worse could send this bad boy down 70% or more in just a few days.

Still a nice story for the shareholders though.  I wouldn't mind paying cash for my next house thanks to a lucky penny stock :)

(And besides, there is so much bad news around here, it's nice to hear that some people are making a killing.)

All Star CAPS members are currently giving DDRX 33 Red thumbs to just 1 Green thumb.  That should be enough for any Fool to think twice before plunging in.  A look at the balance sheet should seal the deal.

UltraLong has an excellent writeup on DDRX that pretty much sums it up:

Let's recap what Diedrich Coffee does here... they roast coffee beans and are a wholesaler for rare coffees. They are also one of the only four licensees to Keurig's K-Cups. Now I'm not saying with the K-Cup craze right now that their holding this honor of being 1 in 4 is a bad thing and worth zero, but this is absolutely ludicrous.

What I think we need to do here is look at Diedrich's past to tell us all we ever wanted to know about the company. Let's look at their operating profits/losses from continued operations so we can get all those one-time gains and other BS out of the way.

2001: Loss
2002: 5 cent per share profit
2003: Loss
2004: Loss
2005: Loss
2006: Loss
2007: Loss
2008: Bigger Loss

Disclosure: Unfortunately, David in Qatar does not own any shares of DDRX to dump on the unsuspecting public.  Nor does he have a new house paid in cash :)

David in Qatar 

7 Comments – Post Your Own

#1) On June 30, 2009 at 3:48 AM, TMFUltraLong (99.95) wrote:

This is what happens when you collectively gather dumb investors together and play follow the leader. Unfortunately, when you have only 5M outstanding shares, you have to beware the power of stupid people in large groups. Give it time, no rush, this will be back to $10-12 very soon.

UltraLong

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#2) On June 30, 2009 at 6:17 AM, JakilaTheHun (99.93) wrote:

I'm not sure I agree with UltraLong.  There's a legitimate story here and if DDRX ends up being consistently profitable off the K-cups deal, the stock was extremely undervalued under $5. 

At $23, it's expensive, but I still wouldn't say it's a "safe" short (if there is ever such a thing).   If DDRX starts brings in EPS over $1 per share, then it's completely possible the thing could still move upwards into the $30 - $40 range. 

I wouldn't buy it at this point.  There was a story there, but you're already late to the action now.  All the same, I'm not ready to give it a red thumb just yet either. 

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#3) On June 30, 2009 at 9:16 AM, alstry (35.09) wrote:

Where,

If you look at the volume when the stock as priced very low, it was practically non existent.....as a result, few could have actually traded the stock at those levels without substantially moving the price.

It wasn't until the stock price went back over a few dollars that any material volume kicked in, and at that point, it was still tiny for the professionals.

This looks like a controlled "friends and family" situtation....if you know what I mean.

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#4) On June 30, 2009 at 9:44 AM, bigpeach (27.60) wrote:

I was noticing this one too. It looks like several factors. Improved quarterly results, joining the russell 2000 so the index funds have to buy in, riding the GMCR mania, and probably a bit of price pumping. I wouldn't buy it.

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#5) On June 30, 2009 at 9:48 AM, TMFKris (88.50) wrote:

There's a story this morning on Fool.com that talks about Diedrich Coffee, if you're interested. http://www.fool.com/investing/small-cap/2009/06/30/5-deathbed-stocks.aspx 

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#6) On June 30, 2009 at 10:49 PM, AnAmateur (< 20) wrote:

Why couldn't I have invested in a stock which went that high in two months?


I could buy a house!

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#7) On July 01, 2009 at 9:58 PM, Stockjockey101 (< 20) wrote:

Let's stop taking history lessons and be more forward thinking.  All of the evidence being given is backward looking.  Stocks are discounting mechanism's - always forward looking.  The run-up in DDRX is based on a fundamental change in the Company's business and in consumer behavior for that matter.  They sold the $$ losing franchises and are now a pure play k-cup wholesale company.  If you look at Wall Street analysts GMCR models and assume DDRX keeps roughly 11% share of the sales in the K-cup market, it is conceivable that this company could earn north of $3.00 per share in 2012.  It appears that they are growing share given DONUT SHOP coffee is the number one selling grocery item on AMZN and number one k-cup on Keirig.com - and doing very well in BBBY.

In fact, I would be surprised if they earn less than 1.00 in EPS in FY 2010 (June fiscal Year).  If that is true, you are paying 20x 1 year forward EPS for a company that is growing Revs and EPS 100%.  The stock has made a monster move, I am long the stock and am staying long the stock.  I have done several store checks, and it is a very simple and easy story to track now....all about razors and razor blades.  Sure the stock could pullback and take a breather, but its the shorts that aren't doing the work, that have created the explosive upside.  If they keep trying to short this stock, we could see $40.00 by year end.  My long thesis is based on EPS of 1.00 in FY2010 ; EPS of 2.00 in FY2011 and close to 3.00 two years out.   This time next year - we would be trading at 10x forward eps if I am correct.  

Good luck to all - but do the work, before you get run-over like the other shorts out there. 

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