Coffee Holding Co., Inc.'s (NASDAQ:JVA) Shares Leap 41% Yet They're Still Not Telling The Full Story

Despite an already strong run, Coffee Holding Co., Inc. (NASDAQ:JVA) shares have been powering on, with a gain of 41% in the last thirty days. The last month tops off a massive increase of 280% in the last year.

Even after such a large jump in price, given about half the companies operating in the United States' Food industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Coffee Holding as an attractive investment with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Coffee Holding

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

Revenue has risen firmly for Coffee Holding recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Coffee Holding's earnings, revenue and cash flow.

How Is Coffee Holding's Revenue Growth Trending?

Coffee Holding's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. 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.

This is in contrast to the rest of the industry, which is expected to grow by 2.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Coffee Holding's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

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. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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.

Before you settle on your opinion, we've discovered 3 warning signs for Coffee Holding (2 are a bit unpleasant!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.