Call it Krispy Kreme Doughnuts (NYSE:KKD) syndrome or Starbucks Corporation (NASDAQ:SBUX) envy, but Jamba, Inc. (NASDAQ:JMBA) fell under the same spell of success that many posh drink and doughnut makers did in the mid-2000s and expanded willy-nilly. Unfortunately for Jamba, it simply assumed that having more stores would lead to big profits and everything would work itself out in the end. Needless to say, “cross your fingers economics” hasn’t worked out too well for Jamba, Inc. (NASDAQ:JMBA). It’s closed stores and cut jobs in order to reduce costs, yet it hasn’t turned an annual profit since 2005.
The more troubling aspect I find with Jamba, Inc. (NASDAQ:JMBA) is its expansion plans, which call for 125 new stores in California. That’s right, an additional 125 stores, all clustered in one state where it already operates. Not only is it planning to add to its network of locations, but it’s doing so in a market where sales are essentially flat!
If Jamba can somehow encourage more people to drink its products from a health perspective it might be able to build its brand image faster. However, Starbucks has pretty much written the book on building a brand and has courted many of the organic and natural-food seekers in the juice and drink market with numerous partnerships. Unless Jamba, Inc. (NASDAQ:JMBA) has something magical up its sleeve, I’m not sure it will ever push its way out of being a middle-of-the-pack kind of chain.
Furnishing fantasies
Home furnishings company Restoration Hardware Holdings Inc (NYSE:RH) has certainly come a long way from where it was just a few years ago. Back then it was deep in the red, riding excess levels of inventory, and discounting everything in sight just to keep the hamster wheel turning. Now, with the company focused on a higher-end customer and better quality merchandise, Restoration Hardware is slowly trickling back into the black.
The concern I have is that this is still a very fragile housing recovery, and Restoration Hardware Holdings Inc (NYSE:RH) is hardly racking up the big bucks — yet its share price has practically doubled since its IPO less than a year ago.
In May, the company boosted its first-quarter EPS guidance to a profit of $0.02-$0.04 from a previous expectation of breakeven results to a $0.01 per share loss. It cited lower inventory and better customer response to its product line as the impetus for its upped guidance. As for me, I’m flabbergasted that a minor bump higher in EPS and a $15 million (about 5%) boost in sales is enough to cause the stock to effectively double!
As soon as the Federal Reserve pares back its bond-buying program, you can expect mortgage rates to tick slightly higher and, I suspect, mortgage applications to dry up. Restoration Hardware Holdings Inc (NYSE:RH)’s business relies on a strong housing market to drive its bottom line. With the company barely on the cusp of profitability, now is not the time to be diving headfirst into a company still in the process of completing a turnaround and trading at a whopping 34 times next year’s earnings.
Foolish roundup
Yet again, history has told me pretty much everything I need to know about these three companies. With a long history of losses and an ongoing restructuring at Jamba and Restoration Hardware Holdings Inc (NYSE:RH), the chance of these stocks seeing big bottom-line gains and maintaining them for an extended period of time seems slim to me.
I’m so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?
The article 3 Stocks Near 52-Week Highs Worth Selling originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Starbucks.
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