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Posted on 10 March 2013 | 3,380 views

Former High Flying Stock Coffee Holding Co has Become Decaffeinated

Shares in the Staten Island-based java distributor Coffee Holding Co. (Stock Symbol: JVA) have sunk by a third in the past few days, trading at $19.79 a share at Friday’s close. The stock in this little-known, family-owned business soared to an eye-popping $30.98 a share last Monday on NASDAQ — after starting the year at less than $4.00 per share.

Coffee stocks like Starbucks (Stock Symbol: SBUX) and Green Mountain Coffee Roasters (Stock Symbol: GMCR) have been hot lately, thanks in part to rising commodity prices, but none has been perkier than Coffee Holding Co., whose shares had risen more than 600% heading into this week. Maybe that’s because Coffee Holding’s formula for success isn’t really selling coffee. Most of its profit actually comes from speculating in the “Coffee Markets“.

Like many companies that sell commodities, Coffee Holding buys futures and options contracts to protect itself against sudden price swings. If the price of coffee rises more than the cost that Coffee Holding has locked in, then the company can make a tidy profit. And that’s what has happened—big-time.

According to a disclosure buried in its latest quarterly report, the company recorded $1.9 million in gains from options contracts in the first half of the year—an amount equal to 86% of its profits. Investors should remember that futures and options markets are volatile, so Coffee Holding’s gains could vanish in an instant. As of the end of April, it had 231 “Commodities Contracts” on its books.

The company didn’t mention anything about its futures-trading prowess in its latest quarterly earnings release. Instead, it attributed its earnings growth to such things as rising coffee prices forcing smaller roasters to buy its beans and its first sales in China.

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