I took a look at some of the markets hottest stocks to see if any are worth your hard earned money. Here's what I found:
Green Mountain Coffee Roasters (GMCR): 2011 is set to be a memorable year for this company which roasts, packages and distributes coffee.
Fiscal third quarter results blew past analyst forecasts. Revenues more than doubled with net income nearly tripling versus the same period last year, thanks to its Keurig brewing system which enjoyed strong customer demand.
At the same time, management raised its earnings guidance. Results should be supported by recently completed acquisitions, joint ventures, notably Starbucks (SBUX) and Dunkin Donuts (DNKN) that have turned the company’s most worthy competitors into business partners, and geographic expansion.
The company recently inked a deal with ConAgra Foods (CAG) which should add nicely to its top and bottom lines. The balance sheet is in decent shape, helped by the recent offering of about 9.5 million shares. At the same time, debt has more than doubled thanks to Green Mountain’s “growth by acquisition” plan. Going forward, investors should monitor this.
On a valuation basis, Green Mountain is far more expensive than Starbucks (price to earnings: 23.94, price to book: 6.6) and Peet’s Coffee and Tea (PEET) (price to earnings: 38 and price to book: 4.5)
Before the market crash, the stock soared 19% on the third quarter report and was up 45% since April. With the recent correction, the current price is 21% down on its 52 week high, will serve as an entry point for growth investors. The current price to earnings of 89 will leave value investors grimacing.
Lululemon athletic (LULU): Lululemon designs and distributes yoga apparel, mainly for the female market. The products are mainly sold online and through the company’s 138 retail stores in Canada, USA and Australia.
Lululemon has a reputation of positive earnings surprises. It lived up to its reputation when fiscal first quarter results were released recently. Earnings per share jumped 35% driven by increased sales at stores (19% gain in comparable store sales), its e-commerce site (51% gain) and wider margins.
The company’s brands have a loyal following, mostly higher income clients who are not price sensitive. This gives the company some breathing space on pricing.
Lululemon’s gross (57%) and operating margins (26.5%) are significantly higher than its competitors, Nike (NKE)- gross -46% and operating- 13.5%, Adidas (OTCQX:ADDYY)- gross- 48% and operating- 7.69%.
The major challenge is sourcing costs, which are slated to increase in the second half of fiscal 2011. This will put pressure on the margins. Despite this challenge, the company is well poised to succeed with higher inventories, new store openings and other positives.
Before the recent market selloff, the stock price rose over 25% from May. The current price to earnings of 52.31 will scare off value investors. A recent dip in the price should catch the notice of growth investors.
TravelZoo (TZOO): Second quarter results were solid. Year over year comparisons showed revenues rising 34% to $37.6 million, net income climbing 51% to $4.9 million and earnings per share advancing 15%.
Even better, 800 000 new subscribers were added. Domestic operations performed well, with revenue climbing 25%. Foreign operations were better, with the European business segment recording 67% rise in revenue.
Despite the strong results, the stock price has fallen in recent months, mainly due to several law suits being filed accusing the company of misrepresenting the financial results of its business. The company views the suits as having no merit, saying that the recent fall in price is the underlying reason behind the filing of the suits.
The company announced a 500,000 share repurchase program recently, in all probability, to instill some confidence in investors.
This situation will surely attract the attention of value investors. The price swing has been volatile with the 52 week high of $103.8 and low of $14.59. The current price sits at $32.82, valuing the company at 41.1 times its earnings and 20.1 times its book value, still more expensive than Expedia (EXPE) - 18.2 times earnings and 2.7 times book value and Priceline (PCLN) - 34.6 times earnings and 13.4 times book value.
PriceLine.com (PCLN): The online travel company reported excellent second quarter results. Revenues advanced 14% and earnings per share increasing by almost 78% driven by strong worldwide bookings (90% of revenues), led by the Asia/Pacific region. On the domestic front, demand was solid due to increased hotel and airline revenues.
Analysts are raising their earnings expectations for the full year on the company’s strong foreign operations and its dominance on the local scene. For the long term, the company fortunes look good as it is currently carving out a dominant share of the international market.
On the valuation front, the current price is 16% below its 52 week high, selling at 34.6 times current earnings and 13.4 times book value, making it expensive compared to, Orbitz Worldwide (OWW), 47 times earnings and only 1.4 times book value and Expedia (EXPE) 18.2 times earnings and 2.7 times book value.
For now, this issue will appeal to growth orientated investors.
Sodastream International (SODA): The second quarter was strong for SodaStream. Revenues advanced 38% to $76.6 million, profit more than doubled to $7.3 million and earnings per share rose. Double digit growth was recorded in all its geographic regions.
Despite the solid results, the stock price plunged because the company maintained its annual forecast, reflecting Wall Street’s shortsighted behavioral disorder. Sodastream expects to earn 30% more in revenues and 60% more in net income over 2010, clearly, this is not enough for Wall Street.
The stock currently trades at $33.79, 45% above its 52 week low and more than 200% below its 52 week high. It’s currently valued at 29 times earnings and 2.83 times its book value. This should be of interest to value and growth investors.