Coffee Holdings' (JVA) shares had already fallen from more than $30 on Monday to $23 by the close Wednesday. Then investors were treated to the news that not just one, but multiple insiders were dumping enormous stakes of Java Holdings. The CEO/CFO, Andrew Gordon, sold 140,000 shares and VP of operations David Gordon joined him by selling 140,000 of his shares on the same day, Tuesday, of this week. While they didn't get the top tick, they locked in sales prices in the mid-20s. The market viewed this news poorly, to say the least, with shares trading down another 18% Thursday. Already the stock is trading almost $5/share below where insiders cashed out.
While I have no complaint with executives getting paid for good performance, in this case I question the insiders' actions. They sold nearly $7 million worth of shares in one day; for a company whose float is barely two million shares, they undoubtedly helped to intensify Tuesday's massive selloff. On Tuesday, Coffee Holdings shares fell $6.98 per share on volume of more than four million shares. While the stock was clearly going down, having executives throw an additional 280,000 shares all at once onto the open market certainly didn't help things.
Since Coffee Holdings had been putting out a string of promotional press releases during the great runup from $5/share to $30/share earlier this year, one can't help but wonder if insiders were trying to drive the stock higher with the hopes of cashing out, as they did near the peak. Coffee Holdings' investors had been chattering about potential buyouts or industry consolidation that would aid the company, a rumor that management seemingly did little to quash. Of course, if a buyout had truly been coming, management would likely have held onto its shares rather than selling into, and in the process magnifying, Tuesday's rout.
In management's defense, it still owns large stakes in the company, even after those significant sales of shares Tuesday. But for investors in Coffee Holdings, that fact offers little solace. As I warned in Wednesday's article, Here Comes The Caffeine Crash, the chart of Coffee Holdings was starting to resemble a classic pump and dump. As it turns out, insiders had already been busy dumping on Tuesday, leaving investors late to the party and stuck with large losses. With all the fundamental problems Coffee Holdings faces that I mentioned yesterday, plus management's affirmation that shares should be sold now, I remain confident that Coffee Holdings should continue trading downward in coming weeks.