High Valuation Keeps JDSA a Hold

Zacks senior consumer products analyst Steven Ralston, CFA had initiated a Hold rating on Jones Soda (JDSA) around mid-2006. In his latest research report, he explains why he is keeping his recommendation the same: “Management has been successfully implementing a growth strategy based on introducing innovative new products, employing unique marketing programs, and utilizing multiple channels of distribution. The company is in the early stages of development as a participant in the carbonated soft drink (CSD) industry. Given the stock’s recent rally and its high valuation, the rating is a Hold. “Although the company reported strong earnings growth in 2006, cashflow from operations declined 19% to $656 thousand. Management cites that an increase in working capital needs reduced cashflow. In addition, as sales increased 16%, accounts receivable grew 87% in 2006. “Jones Soda is currently selling at 99.2 times trailing 12-month EPS [earnings per share], reflecting the company s higher-than-average growth profile and long-term potential as a producer and marketer of New Age beverages. The franchise would have particular value to a major CSD company. In addition, the company should benefit from additional retail accounts and improved distribution capabilities. Since the company is in its early stage of growth, earnings and cashflow are volatile. The stock is better valued using P/S (Price-to-Sales). The target price is $19.75, which is 10.0 times estimated 2007 sales.” Read the analyst report on JDSA