Teavana Holdings Inc. (NYSE:TEA)

CAPS Rating: 1 out of 5

Recs

7
Player Avatar TMF1000 (99.68) Submitted: 7/31/2011 9:28:43 AM : Outperform Start Price: $29.00 TEA Score: -72.74

My stock was entered in at $29. I also bought the stock for my portfolio. The purchase begins what I expect to be a long successful journey for me. When an IPO is announced it can be hard figuring out for sure how much the company will make per share since so many shares are added to the count. I believe they are now making about $0.35 to $0.39, so the valuation is very high. they have about 163 stores, but plan to open 500 stores by 2015. That represents a lot of growth by itself. But the reason I invested in them and plan on adding more is that I am a big believer in the health benefits of loose-leaf tea. I like the taste better than teabags. I think there is a trend in the U.S toward teas and this represents growth opportunities.

There is a downside besides the high valuation - there are no moats for the business. There are other companies that sell loose-leaf tea, but for now this is in my opinion a very underserved niche in the U.S. My fear is that they will expand too quickly, pick up too much debt and destroy what I believe will be a very successful concept. They should have zero debt presently with the $15 million picked up in the IPO. But I can't be sure until they report their first earnings report.

It is my opinion, this stock will be very volatile which will allow me to buy a long-term position and create trading positions too that will help me expand my long-term position with them and expand my portfolio.

I waited for this IPO since first writing about it in my studies of Starbucks a few years ago.

Report this Post 3 Replies
Member Avatar Greener1977 (< 20) Submitted: 10/30/2011 9:42:55 AM
Recs: 1

Don't forget international expansion opportunities as well. It was announced back in July, an agreement between Alshaya group (based in Kuwait) is actually a very bullish point for TEA. Alshaya is the largest franchisee in the Middle East, they have absolutely exploded in terms of new stores over the past year, a few they are responsible for (PF Changs, CPK, Shake Shack, Red Lobster, Pinkberry (MENA and Europe), Starbucks, Texas Roadhouse, Victorias Secret, Cheesecake Factory)...

Member Avatar OklaBoston (68.87) Submitted: 1/6/2012 6:01:51 PM
Recs: 1

The safest bet for any IPO is that it will be overpriced regardless of how bright it's future may be, and that insiders will grab easy profits by selling what they get by exercising company provided options. That process is still under way with this stock. So my thumbs down will remain active for months yet in all likelihood..

Member Avatar TMF1000 (99.68) Submitted: 7/20/2012 12:37:12 PM
Recs: 0

This one hasn't worked out well for me on Caps or in my portfolio as of yet. But I do thnk tea consuption in the U.S is going to go up. Teavana has a nice selection of loose leaf teas.

Tea has health benefits that someday are likely to be more appreciated by the U.S. consumer and represented the main reason I wanted Teavana as an investment. Tea still significantly lags coffee consumption in the U.S and this is reflected in Teavana emphasis on selling loose leaf tea and accessories instead of the actual in-store brewed tea.

Unlike Starbucks that encourage people to buy coffee and sit and talk in their stores, Teavana has no store space devoted to sitting and sipping teas – only 4% of their revenue come from the actual sales of brewed tea. I believe this part of their business will evolve as they expand their business into other countries where tea drinking is more popular. In time, I also believe that more people in the U.S will switch to tea if for no other reason, then the lower caffiene in teas. For Teavana it might be best if this transition takes place very slowly so not to cause deeper pocket companies like Starbucks to create their own loose-leaf tea superstores. Starbucks should remain busy with their Evolution Fresh juice stores, but their partnership with Tata Beverages may also mean they have a loose-leaf plan on the long-term drawing board.

The price is much cheaper than it was when it went public. The PE ratio is 24.11 which represent good value if they can continue to grow. They are trading at PE ratios of 19.12 and 14.79 analysts’ 2012 and 2013 net income per share estimates. So this is a logical place to add shares. It could go lower if same same store sales fall faster. I also think their ecommerce business will be a big success and become a much larger part of their business.

There are risks. They have a very short track record. They aren’t Starbucks, however, it is interesting to note their operating margins are 13.22% in the first quarter compared to Starbucks 14.87% operating margins reported in their most recent quarter. That is fairly close and very interesting considering Teavana doesn’t emphasize beverages which are a very high margin item. By not creating space for customers to sit and sip, they can conduct businesses in very small stores which reduce expenses. I don’t know how this will affect them in the long-term. This is one of the risk associated with buying small companies that don’t have long track record, we just have to wait to see how they evolve their business and see if that develops a competitive advantage for them.

They certainly have room to grow. They plan on having 500 stores by 2015. Today they have 223 stores in 39 states. Someday, I expect them to expand outside the U.S where tea consumption is higher. Their small store format could also mean they could add far more stores in the U.S by 2020.

Starbucks opened a tea store based on their TAZO brand teas. These are tea bag teas and for me this is an inferior product. That isn’t going to compete well with Teavana. I feel their big competition comes from PEET who sells premium loose leaf teas at their website. I often purchase loose teas from them. Also you can find very good loose leaf teas from Twining at many grocery stores. So far, Starbucks isn’t the competition.

They could be in the future. Starbucks established a partnership with Tata Global Beverage limited to open Starbucks in India. But what we need to watch for is: will this partnership also supply Starbucks with large quantities of loose leaf teas to be sold in their stores in the U.S? Tata Global Beverage is the second largest tea branded company in the world. So this could be a future threat or it may not. But it is worth watching.

I own Teavana at higher prices. And I feel this is a good place to add to my position. I wouldn’t invest as much in them as I would Starbucks on a dip. Starbucks is larger and more stable, their future is fairly predictable and they should be here forever. Teavana’s future is more unknown at this point, but their long-term potential is exciting. If they become the Starbucks of Teas in the U.S and then globally a little invested is all that will be needed, so my plan is to ease into it over time while I watch and study the company’s business evolve and watch what competitors do. One thing that is very important, even if they did become king of teas, it would be at a much slower rate of growth than what Starbucks accomplished with coffee. But slow and steady can be good too.

I think this would make a good Hidden Gem. But there are risk factors as I mentioned in the above post. Prices may fluctuate broadly. The price may fall below $8 based on a slowing economy, competitive threats or the perception that the price is still overvalued based on growth rates. I don't worry about price volatility. I ease into my stocks over time. I allocate money according to risk factors. I think Teavana is one worth a small position. Its not Starbucks nor is it likely to grow like Starbucks, but it has very interesting potential and its a very small company with a market cap of $426 million.

No one can value this company easily. I never expect to buy a company at its bottom. I want a good business at a reasonable price and then I hope to get more at prices that represent better value points. I don't worry about short-term volatility: I build for the future: I exploit volatility.

Today's price is much lower than it was after its public offering and its price represents a much safer entry point. Earnings are going up and analysts expect them to continue to grow reaching $0.75 in fiscal 2013.

Featured Broker Partners


Advertisement