Cosi, Jamba Soar, Heightening the Risks

Cosi and Jamba have each more than doubled this year, but the risks are piling up.
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BOSTON (TheStreet) -- Cosi (COSI) and Jamba (JMBA) - Get Report have more than doubled this year as consumers downshifted to cheaper restaurants.

But the micro-cap restaurant stocks are rife with risk.

Cosi, whose motto is "life should be delicious," should change their corporate mantra to "business should be unprofitable." The coffee, salad and flatbread purveyor models its venues as Parisian cafes. Though the ambiance is appealing and the food is tasty, Cosi continues to hemorrhage money. It has posted losses for 12 consecutive quarters. During the fourth quarter, its loss narrowed to $4.5 million, or 11 cents a share, from $8.4 million, or 21 cents, a year earlier. Comparable store sales fell 5.4% despite an uptick in consumer spending.

Shares of Cosi just closed above $1 for its 10th consecutive trading session, regaining compliance with

Nasdaq

listing requirements. But, like

Sirius XM

(SIRI) - Get Report

, shareholders are the only population convinced of a sustainable turnaround.

Cosi's stock has tripled during the past year, though it has plummeted 39% annually, on average, over three years. It sells for a price-to-book ratio of 5.5, a 23% discount to its restaurant peer group, but a massive premium to the 1.9 average of the

Russell 2000

, a small-cap barometer.

Singular Research

rates Cosi "buy," with a price target of $1.15, implying that the stock is currently overpriced by 10%.

Competitor

Panera Bread

(PNRA)

owns the cafe model, and its record of growth and profitability is impressive.

TheStreet's

stock model rates Cosi "sell." Cosi receives a growth score of just 1.7 (out of 10) and a financial-strength score of 4 out of 10, illustrating a risk that investors seem happy to ignore.

Jamba, owner and franchiser of Jamba Juice, is held in higher esteem, with a growth score of 3.4. It still receives a "sell" rating. Jamba's theme, smoothies, is more original than that of Cosi. Jamba swung to a profit in the third quarter, demonstrating potential for long-term success. But given that its shares have nearly quintupled in the past year, optimism is inflated.

During the past three years, Jamba shares have fallen 28% annually, on average, underperforming stock-market benchmarks. Its fourth-quarter loss narrowed to $11 million, or 23 cents, from $41 million, or 75 cents, a year earlier. Still, revenue dropped 9.8% to $51 million, and company-owned comparable-store sales fell 5.3%. Jamba strengthened its balance sheet. It now possesses $31 million of cash and just $250,000 of debt.

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Its stock trades at a price-to-projected-earnings ratio of 28, a modest discount to the industry average, but a sizable premium to the broader market. Its cash-flow multiple of 21 reflects a 51% premium to its peer group. Just one sell-side firm,

Jefferies

(JEF) - Get Report

, covers Jamba, rating it "hold" with a $2.50 price target, indicating that the stock could fall 30% from current levels. Jamba has been around since 1990 and now that its debt load has been eliminated, the path to a profitable future may lie ahead. Even so, its stock is egregiously overpriced.

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-- Reported by Jake Lynch in Boston.