What Starbucks did for coffee, will Teavanado for loose-leaf tea?
“Mad Money” host Jim Cramer isn’t drinking that Kool-Aid.
“First of all, we’ve always been a nation of coffee drinkers ever since a bunch of drunken Bostonians put on costumes and dumped tons of British tea into the ocean over 200 years ago,” he said. “More important, Starbucks didn’t succeed because it introduced us to the latté, it became a turbocharged growth phenomenon because the company created an atmosphere in its stores that made people want to spend lots of time there Starbucks became a lifestyle.”
Teavana went public in July at $17 and quickly perked up to $28.95. But in recent months, the stock took a beating and closed Thursday at $16.96 per share.
“Now, you can sometimes find some fantastic bargains by looking at fresh-faced IPOs stocks that have had massive declines since coming public, but Teavana? It ain’t one of them,” Cramer said.
The retailer gets 56 percent of its sales from loose-leaf tea, 40 percent from teapots and related items and only 4 percent from actual beverages.
“There aren’t even chairs to hang out in at Teavana,” Cramer said. “Teavana's probably more of a Williams-Sonoma for just teapots than a Starbucks for tea.”
In the past quarter, Teavana posted a 6 percent increase in same-store sales, while traffic was actually down 2.5 percent, leading to a 9 percent sell-off when the company reported.
Meanwhile, Starbucks saw global same-store sales climb 9 percent in the same period.
Cramer used his price-earnings-growth metric to separate the coffee bean from the tea leaf: Teavana stock sells for 28 times next year’s earnings estimates despite having a 32 percent long-term growth rate.
“In other words, it’s trading at 0.9 times its growth rate — that’s the PEG, which relates the multiple to the growth,” he said. “Normally I’d say a stock trading for less than one times its growth rate was cheap, but Teavana just doesn’t give you the visibility that’s necessary if you’re going to pay up.”
By contrast, Starbucks sells for 19.5 times earnings with a 17 percent growth rate, for a PEG of 1.15. “And I’m happy to pay that price for growth that’s consistent and sustainable, especially with Howard Schultz, one of the greatest CEOs of all time, at the helm,” Cramer said.
Not only would Cramer not buy here, he said it’s not too late to sell ahead of the post-IPO lockup period that expires Jan. 23.
“There could be a ton of selling because the CEO owns a ton of stock. Private equity investors hold 19 percent,” he said. “Just too much risk for this tea drinker.”
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