Teavana Is The Tea Version Of Starbucks

Nov. 8.11 | About: Starbucks Corporation (SBUX)

Noticing long-term trends is a steadfast and proven theory for investing. The idea that people are eating healthier is a trend that can be used as an example. You could have generated some enormous profits by investing in Whole Foods Markets (NASDAQ:WFM) and Hain Celestial (NASDAQ:HAIN) by catching on to this trend early enough. These kinds of trends are destined to play out over decades and not over weeks or months.

I have written multiple articles on HAIN and WFM. I recently realized I was missing out on something very clear and apparent. In an attempt to divert from my ways of overdosing on caffeine I have been drinking tea. This has been an ongoing battle for over a year and I find myself drinking more tea than coffee for the first time in recent months. As I was reworking and testing some of the models I have for WFM and HAIN I realized my tea bags were being ultimately manufactured by Teavana Holdings (TEA). I realized that this is entirely part of the ongoing trend that HAIN and WFM are taking critical roles in. After I did some quick financial work I realized that TEA is a pretty compelling story.

Revenue has grown 40% year over year since 2008. That alone is a pretty impressive statistic when you take into consideration the overall flux the economy has been in. Net Income has grown a massive 3057% since 2008 rising from $.38M in 2008 to $12M in 2011. The company briefly took on some debt in 2009 and 2010 and paid nearly all of it off already. The current ratio is 1.34 as of the previous quarter showing that TEA has no issues paying its current liabilities. Inventory turnover has been growing at an impressive rate as well. To me it appears this company is having no issue selling more of its products. The main product, loose tea bags, is traditionally a very inelastic and cheap product. Even if consumer income drops dramatically I do not think individuals would stop paying $5 for their large container of tea.

The P/E ratio is exceptionally high in this company and this is my greatest criticism and reason for concern. However, if this company continues to grow at the impressive rate it has been able to achieve I think it will have little to no issue growing into this P/E level. I am not long TEA yet as I am awaiting a more attractive price level to enter my position.

Disclosure: I am long HAIN, WFM and I am waiting for a more attractive price level to invest in TEA.