Coffee Holding Co., Inc. (NASDAQ:JVA) Stock Rockets 30% But Many Are Still Ignoring The Company

Despite an already strong run, Coffee Holding Co., Inc. (NASDAQ:JVA) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days were the cherry on top of the stock's 401% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, Coffee Holding may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Food industry in the United States have P/S ratios greater than 0.9x and even P/S higher than 3x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Coffee Holding

What Does Coffee Holding's P/S Mean For Shareholders?

The revenue growth achieved at Coffee Holding over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Coffee Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Coffee Holding's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. Revenue has also lifted 19% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 2.6% shows it's noticeably more attractive.

In light of this, it's peculiar that Coffee Holding's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Coffee Holding's P/S

The latest share price surge wasn't enough to lift Coffee Holding's P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Coffee Holding revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Coffee Holding is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.