Jones Soda Company (JSDA) Analysis
5-23-07: Jones Soda Company (JSDA) is an interesting new comer to the soft drink market. While JSDA has not reached critical mass and has yet to become a household name like the Coca-Cola and Pepsi of the world, this small company is getting a lot of attention, very much like Hansen (HANS) a few years ago. Looking over the company’s stock performance, JSDA has provided investors with about 100% return in the past two year (very respectable). Currently trading about $21 per share, the question is whether JSDA is currently a good buy. Let’s take a look.
Last year (2006), JSDA reported revenue of $39 million. This represents about 16% year over year growth from 2005. The company’s market value (market cap) currently stands at $559 million. This basically mean if the company were to sell all of its outstanding shares; it would be worth about half of a billion dollars. Another way to look at this is the company is currently trading about 140X last year’s earning of $4.6 million. Let’s assume JSDA does well in 2007. For the sake of argument, let's say the company is able to grow 20 percent in 2007. This would mean the is still trading about 120X. Is this company really worth half of billion in valuation?
In comparing the Price to Earnings (P/E) ratio of JSDA with some of it main competitors such as Coca-Cola and Hansen, JSDA is trading 4X that of Coca-Cola and 3X that of Hansen, respectively. If we purely look the numbers, JSDA is definitely overpriced in comparison to its peers. In another word, this stock is priced for perfection, which is why the stock dropped despite respectable earning last quarter. This is typically of a growth stock. Wall St. tend to overestimate their growth and tend to hype it. What typically happen is the stock will sell off when earnings are released. The “buy on the rumor and sell on the news” were in play with JSDA.
We realized just because a stock is trading with a high P/E ratio doesn’t mean it cannot go much higher. There are many stocks where investors simply ignore the P/E in their analysis. A prime example is Baidu.com (BIDU) where the market expects a lot in respect to the company’s future growth. As a result, investor has chosen to ignore the fact that BIDU’s P/E is out of whack. As long as the company is able to convincingly exceed their expectation, investors will tend to keep hyping the stock. If however, the stock fails to meet Wall St. expectation in any way such as issuing lower guidance or worse, failing to exceed earning expectations, the stock will tumble hard and fast.
Getting back to JSDA, while we see a lot of potential in respect to the company’s growth prospect, we would be very cautious in entering the stock at this price. Just because it is trading at $20 per share, it does not mean the stock is now a deal. In our humble opinion, the risk is higher than the potential reward. We are not trying to bash JSDA by any means, it just the company's current value is not justifiable.
By the way, thanks to "investor" (a regular ibooyah reader) for requesting our opinion on JSDA. If you are interested in our view on other stocks, drop us a message by posting a comment.
Comments
I'd like to have your view on uranium stocks such as CCJ and EMU among others. Will the recent spike continue?
Many Thanks,
Michael
Posted by: Michael | May 24, 2007 04:19 AM
what do you think about TIE at 37 price range. Is it worth buying at this level?
I appreciate your time.
Posted by: Murali | May 24, 2007 09:13 AM
Hello Murali,
TIE is a tough call. It appears the stock is still trading down and has not yet reached its support level. Today, we noticed it is at $34. We would wait a bit more before jumping in. Target entry price for TIE would be $32. That in our view would be ideal. Good Luck.
Michael, We remain bullish on CCJ. Here is our original analysis of CCJ:
http://ibooyah.com/blog-mt/mt-search.fcgi?IncludeBlogs=1&search=ccj
Posted by: ibooyah | May 25, 2007 10:50 AM
In your Jones Soda analysis you have have confused revenue with earnings. JSDA currently has a P/E ratio of over 102 because the company's "earnings" for 2006 was about $4.5 million while its revenue was about $39 million. You correctly identify the revenue number in your first sentence, but then later refer to that number as earnings when you shift your discussion to comparing PE ratios.
The proper question is this: Is a company that earned $4.5 million in 2006 worth half a billion dollars? My answer is no. Not at its current rate of growth. If JSDA accelerates growth considerably and can sustain the high rate for several years, then it would deserve such a lofty valuation.
Posted by: Adam Sciortino | May 29, 2007 07:34 AM
Now that JSDA is trading around 15bucks, do u think is this a good time to buy?
Posted by: Madhu | June 25, 2007 07:53 AM
Hello Madhu,
Jones Soda at under $15 is much less riskier than when we first wrote about it. Although still a bit expensive, we do believed it is a good entry point at $14 per share. Our opinion is, the downside risk is currently not as great as it once was. Good Luck.
-iBooyah.
Posted by: ibooyah | June 29, 2007 06:36 AM