The stock of coffeehouse and coffee brand retailer Caribou Coffee Company (Nasdaq:CBOU) was on a tear earlier this year, but it has cooled considerably so far in May. Slowing trends from a key customer and negative overall stock market sentiment have pushed the share price into more reasonable territory.
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Recent Developments
Earlier in May, Caribou reported first quarter results. Sales advanced a very healthy 11.4% to $80.5 million. Coffeehouse store sales accounted for the vast majority of the top line at 74.2% and advanced a modest 3.7% on new store openings and comparable same store sales that increased 2.5%. Commercial and franchise sales made up the rest of sales and jumped almost 42%.

More recently, Caribou presented at the Baird Growth Stock Conference and provided its long-term growth goals. Management expects to continue to ramp up new store openings and eventually reach 8 to 10% new unit growth annually. At the existing stores, it projects comps between 2 and 4% and growth in its commercial segment between 15 and 20%. Combined with cost controls, it expects to leverage this into annual earnings growth of around 25%.

Outlook and Valuation
For the full year, analysts currently project 7% sales growth, total sales of almost $350 million, and 49 cents in profits per share. This fits right in with Caribou's guidance for sales growth between 6 and 8% and diluted earnings in a range of 47 cents to 50 cents per share. In 2013 they project robust profit growth of nearly 27% to earnings per share of 62 cents on 10% sales growth to $384.2 million.

Based on these projections, the forward earnings multiples stand at 23.2 and 18.3, respectively.

SEE: Everything Investors Need To Know About Earnings

The Bottom Line
Current negative investment sentiment in the stock market has pushed Caribou's stock 40% below its highs for the year. Investors were also concerned about slowing trends at Green Mountain Coffee Roasters (Nasdaq:GMCR), which owns the popular Keurig "K-Cup" single-serving cup devices. Caribou's commercial growth is tied to Keurig.

This should still be a growing category. Caribou points out that 85% of coffee is still brewed at home and moving to more premium blends. Overall, there should be plenty of room for Caribou to sell its brands to Green Mountain, and potentially to other rivals such as Kraft's (NYSE:KFT) Tassimo machines and Sara Lee's (NYSE:SLE) Sensio devices. It can also continue to grow its smaller store base, such as peer Peet's Coffee & Tea (Nasdaq:PEET). The earnings valuation still isn't in the bargain basement, but is much more reasonable that just about a month ago.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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