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 annual gain comes to 280% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, considering around 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 solid investment opportunity with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Coffee Holding

What Does Coffee Holding's Recent Performance Look Like?

The revenue growth achieved at Coffee Holding over the last year would be more than acceptable for most companies. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Coffee Holding will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Coffee Holding?

In order to justify its P/S ratio, Coffee Holding would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. As a result, it also grew revenue by 19% in total over the last three years. 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.

In light of this, it's peculiar that Coffee Holding's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite Coffee Holding's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see Coffee Holding currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

You need to take note of risks, for example - Coffee Holding has 3 warning signs (and 2 which are significant) we think you should know about.

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.