Top four reasons to invest in Teavana Holdings, Inc. (NYSE:TEA)

Here are four reasons investor demand for Teavana’s shares will likely be high when the company IPOs.

It’s hard to believe that a purveyor of luxury teas could be making cash hand over fist in a country where unemployment hovers near 10 percent, but that’s the economic irony we face. Teavana’s growth story is compelling enough to consider investing in the 14-year-old company, though. Here are four reasons investor demand for the shares will likely be high when Teavana IPOs:

1) It’s not just the leaves that are green. Teavana’s net income was $12 million in fiscal year 2010. That came on revenue of $125 million giving the company an after-tax profit margin of 9.4 percent. That’s the same profit margin as coffee darling Starbucks Corporation (NASDAQ:SBUX), according to SeekingAlpha.com. Teavana’s P/E ratio is hovering at 40 (compared to SBUX’s 27). That would be high for a long-established company, but Teavana appears poised for the sort of rapid growth that justifies high P/Es.

2) Room to spare. Teavana expects to add 110 new retail outlets through the end of 2012 nearly doubling the company’s total number of stores (which stands at 161 at the moment). Income from the IPO should help Teavana pay down debt before incurring costs for its new stores. The good news? Teavana claims it takes just a year and a half for a new store to start turning a profit. That means those 110 outlets should be in the green by 2014. By 2015, Teavana expects to have more than 500 stores in operation.

3) Harnessing the Web. Teavana’s online sales have grown meteorically at a compound annual growth rate of 56 percent since 2007, according to the company’s S-1 filing. “We believe we have the opportunity to grow e-commerce sales to at least 10 percent of sales in the future,” Teavana writes. That’s up from 7 percent of sales the company currently enjoys. Lower overhead on online tea sales could ratchet up earnings.

4) Changing tastes. Whether true or not, there’s the perception that tea’s better for the body than coffee. Teavana’s capitalizing on that perception, and – in an increasingly health-conscious society – that could bring the U.S. closer to parity with foreign countries, which tend to consume far more tea. In fact, the U.S. ranks No. 22 in tea consumption in the world, according to TheStreet.com. More tea for Americans means more profits for Teavana. In 2009, Americans consumed 157 cups of tea per capita. That might sound like a lot, but it’s far less than the total tea consumption in Asia. Indeed, per capita tea consumption stood at 737 in Asia in 2009. If Teavana can get more Americans shunning coffee for tea, their stock will likely make a lot of investors happy.

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