Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Diedrich
Coffee (DDRX) -- An Undiscovered Gem that is Now Selling at a P/S
Ratio of 0.50 |
Published: August 8, 2005
In my weekly premium
newsletter -- Undiscovered
Micro-Cap Gems -- my goal is to introduce readers to a variety of
promising micro-cap investing ideas that they may wish to consider for
their portfolios. In doing so, I generally look for small, neglected
companies that have been overlooked by conventional Wall Street sources.
I also look for undervalued firms that are trading at a steep discount
to their intrinsic value. Many of these individual investment ideas have
the potential to deliver triple-digit percentage gains in the years
ahead.
Below you'll find an
in-depth look at one such investing idea that I introduced my readers to
in a recent issue. To
gain access to dozens of similar investing ideas each and every week,
you'll need to subscribe to my Undiscovered
Micro-Cap Gems service. In the meantime, I sincerely hope you enjoy
today's sneak peak at one of my most recent micro-cap investing ideas...
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Diedrich Coffee (DDRX, $5.30)
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Diedrich
Coffee (DDRX)
Sector =
Services
Industry = Specialty Eateries
Market Cap. = $27.9 million
Enterprise Value = $12.1 million
2004 Revenues = $54.6 million
2004 Gross Profit = $12.8 million
2004 Revenue Growth = -0.2%
Insider Ownership = 24.7%
Institutional Ownership = 27.5%
Insider Activity (ttm) = Positive
Enterprise Value/EBITDA = 5.6 |
Diedrich is one of the nation's
largest coffee sellers, operating more than 200 coffeehouses in the U.S.
Aside from its extensive retail operations, the company also provides
coffee and related products to hundreds of wholesale accounts, including
restaurants like Ruby Tuesday.
Although Diedrich is the country's number two coffee chain, it operates
in relative obscurity under the shadow of its much larger rival,
Starbucks (SBUX). However, as is often the case, Starbucks' superior
name brand recognition comes at a steeper price. Currently, investors
are shelling out more than $3 for each dollar of revenues at the
Seattle-based giant. That compares to just $0.50 for each dollar of
revenues for Diedrich, which trades at just half of last year's $54
million in sales.
That compelling valuation provides shareholders with a decent margin of
safety. Companies that are priced for perfection must deliver on those
lofty expectations; otherwise they can be highly vulnerable to punishing
sell-offs. For example, rival Peet's Coffee -- which trades at similar
P/E multiples to Starbucks -- reported impressive second-quarter
financial results last week. Net income soared +46% to $2.6 million on
sales that climbed nearly +25% to $41.7 million. Furthermore, earnings
came in at $0.18 per share, outpacing estimates by two cents. However,
the market had priced in even better results, and responded by pushing
the shares nearly -7% lower on the news.
Meanwhile, the bar has been set much lower for Diedrich. As a result,
not only will weak results be less likely to induce heavy selling, but
any upside surprises could also be very rewarding for shareholders.
However, inexpensive stocks often trade at rock-bottom prices for valid
reasons, and an attractive valuation alone is not sufficient to warrant
DDRX a spot in my portfolio. Fortunately, there are a number of other reasons
to take a closer look at the company. To begin with, Diedrich has a
healthy balance sheet, with $18 million ($3.41 per share) in cash on the
books against very little long-term debt. Furthermore, corporate
directors and institutional owners hold more than half of the firm's
outstanding shares, and insider activity has been generally positive.
Finally, the company is free cash flow positive, with operations that
have generated more than $2 million in cash over the last twelve months.
Through the first three quarters of the fiscal year, although total
revenues only ticked up by about +2%, the company posted an impressive
+5% gain in same-store sales, as well as a +32% spike in online
revenues. Over the same period, wholesale revenues rose by $660,000, or
+6.2%, thanks to a +22.6% increase in sales to third party distributors.
Earlier this year, Diedrich sold the international operations of its
Gloria Jean brand to an Australian franchisee for an after-tax gain of
$15.5 million. According to the terms of the deal, the company is also
slated to receive additional payments totaling $7 million over the next
seven years. Management has earmarked the proceeds for domestic
expansion.
A renewed focus on domestic brands is a sound long-term decision that
has given Diedrich, in the words of CEO Roger Laverty, "a fresh
start." Not only has it unlocked substantial shareholder value, but
it has also given the firm a mountain of cash to fund future growth
opportunities. Though the company's stock has lagged the industry over
the past five years, I believe management has taken the right steps to
bring DDRX more in line with competitors.
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Important Note: The above article
was merely a small excerpt from a recent issue we sent to subscribers of
our premium value investing service -- Margin-of-Safety
Investing. In each issue of that newsletter, editors Nathan
Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted
stocks that should provide investors with a solid margin of safety at
current prices. To receive your copy of our most recent issue of Margin-of-Safety
Investing, as well as other guidance similar to this twice per
month, you'll need to subscribe to this publication. To learn more,
please visit:
https://www.streetauthority.com/subscribe-msi.asp
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
Nathan Slaughter's premium value investing newsletter --
Half-Priced
Stocks |
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