Jamba Inc. (NASDAQ:JMBA) is a good case for shorting. I think the argument is strong today given its current price and valuations.
I like to start at cash. JMBA has $0.55/share of net cash. They had more in the past few years but burnt through their cash due to the losses they have been running on their core juice business. While I love to give companies credit for any cash they have, JMBA is a case where this does not apply because they are going to churn through it soon.
Next, let's examine top line growth. JMBA had about 350 mil in sales in 2008 vs 300 mil in 2009. Even when you consider the last two quarters of the year, when most companies were recovering and growing revenues year over year, JMBA still incurred losses and falling revenues.
I believe that JMBA's business model is flawed. The company is mismanaged and customer service at Jamba Juice has been disappointing whenever I have visited in the past few years. Not only do they take too long to make your drink, they actually even forget to add the boosts in. However, this was not always the case. In 2007 and earlier, I was mostly satisfied, and the bad customer service today is a result of aggressive cost cutting since 2007.
It would be hard for me to believe that people would continue to pay for Jamba's products given that they are overpriced and are accompanied with bad customer service. I was a loyal Jamba customer 3 years ago, not anymore. Hence, I expect Jamba to deplete its cash by incurring further losses and eventually going bankrupt 24 months from now.
After hovering in the $1-$2 range, the stock has been up to $3+ and this presents a great entry point for shorting. The company releases earnings later this month and this will provide further insight into why the business is flawed and I look forward to pressing my shorts unless I see that the theme has dramatically changed.
Price Target: $0 Jan 2012
Disclosure: Short JMBA