New World Coffee is a STRONG BUY for several reasons. The company owns and operates 40 specialty coffee cafes in the Northeast, and has recently announced its first ever positive quarterly cash flow. The company is growing rapidy (Revenues increased 40.6% year over year), and should report a profit this year according to the CEO, Ramin Kamfar. The company began 4 years ago, and through rapid growth, has achieved a critical mass which will allow them to be profitable, and continue to grow profitablitiy in the future.
On a valuation basis, the stock is a screaming buy. It is currently trading at $2 5/16, which is near its book value of $2.10 per share. It is trading at 0.34 times sales, and 16X estimated earnings of $0.14 per share. National Securities, the underwriter, has a target stock price of $8-10. Considering that the IPO price was $5.50 on 2/1/96, the stock is definitely oversold, and represents value. Compared to Starbucks which trades at 5.34 times book value, 3.57 times sales, and 46 times earnings estimates, this stock is a layup!!
According to materials I received from NWCI, their goal is to continue growth, and to become the alternative to Starbucks. They don't want to go up and compete head-to-head with SBUX, but to share in the marketplace. Much like Wendy's and Burger King are alternatives to McDonalds.
I have personally sampled NWCI's coffee on several occasions in New York City, and find it very similar in taste to Starbucks coffee. In the morning, the place is usually packed with people buying $3.00 cappucinos! Since they only take up about 1,000 square feet, there really isn't a lot of overhead associated with opening a store.
I bought the stock at 2 1/8, and 2 3/8 recently, and feel there is little downside. This is a low risk, value stock, with high growth, trading at oversold prices! Any comments or questions?? |
