David’s Tea (DTEA) Company Overview & Stock Price Forecast
This article provides a brief analysis and stock rating for David’s Tea (DTEA) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.
Updated October 2021
David’s Tea Fundamentals
Stock Price Target: $7.03
In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for David’s Tea in comparison to the Specialty Retail industry and the S&P 500.
David’s Tea is a Micro Cap company with a Market Cap of $86.2M.
How are investors using David’s Tea earnings yield to assess the company?
The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).
The current earnings yield for David’s Tea is 10.21%%, in comparison to 3.55% for the S&P 500 and 1.59% for the 10-year treasury bond. The median earnings yield for the Specialty Retail industry is 6.96%.
What does David’s Tea Price-to-Earnings Ratio (P/E) tell investors about the company?
The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings.
David’s Tea is currently trading at a P/E of 1.69. The P/E for the Specialty Retail industry is 14.92 and the P/E for the S&P 500 is 28.16.
What is the current Price-to-Sales Ratio (P/S) for David’s Tea?
The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.
David’s Tea is currently trading at a P/S of 0.94. The P/S for the Specialty Retail industry is 0.81 and the P/S for the S&P 500 is 3.06.
How does David’s Tea Price-to-BookRatio (P/B) compare to the Specialty Retail industry?
Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.
David’s Tea P/B ratio is currently not reported. The P/B for the Specialty Retail industry is 5.51 and the P/B for the S&P 500 is 4.76.
How attractive is David’s Tea Return on Invested Capital (ROIC) to investors?
Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.
Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.
David’s Tea ROIC is currently 253.6% in comparison to 22.69% for the Specialty Retail industry and 8.6% for the S&P 500.
What is David’s Tea YTD Performance in comparison to its industry and the total market?
The year-to-date (YTD) performance is the amount of profit/loss realized by a stock since the first trading day of the current calendar year.
The YTD performance for David’s Tea is 48.55%. The Specialty Retail industry has a YTD performance of 27.51% in comparison to the YTD S&P 500 performance of 19.25%.
Recent Financial Results
- Sales for Q2 2021 decreased 18.6% to $18.7M, down from $23M YoY
- Gross profit of $8M in Q2 2021, a decrease of 4.1% YoY due to a decline in sales during the period
- Earnings from operating activities of $74.5M compared to $4.1M in the prior year quarter
- Net income of $75.5M in Q2 2021 compared to $2.6M in the prior year quarter
- Adjusted net loss of $2M compared to a net loss of $1.7M in the prior year quarter
- EBITDA reported of $75.5M compared to $5.4M in the prior year quarter (an improvement of $70.1M)
Stock Price Target: $7.03
David’s Tea specializes in proprietary loose-leaf teas, pre-packaged teas, tea sachets, tea-related accessories through its e-commerce platform at davidstea.com and the Amazon Marketplace. The company’s wholesale customers include over 2,500 grocery stores and pharmacies and 18 company-owned stores across Canada. The company primarily offers proprietary tea blends that are exclusive to their brand, as well as traditional single-origin teas and herbs.
In March 2020, the company closed all of it’s stores in the US and kept only 18 of it’s stores in Canada due to the COVID-19 pandemic. In July 2020, the company announced that it would be implementing a restructuring plan under the CCAA in order to accelerate it’s transition to an online retailer and wholesaler. The company stated that it would continue to operate its online business through it’s e-commerce platform at davidstea.com, on the Amazon Marketplace and through its wholesale distribution channel.
The current CEO is Sarah Segal and the company is based in Canada.
This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.