"We believe DTEA's modern in-store experience, innovative culture, attractive market positioning, and track record of strong new-store returns in Canada position the company well to achieve 25 percent long-term EPS growth," analyst Kelly Bania wrote in a note.
Bania said the upcoming catalysts for the company include higher customer traffic from transaction efficiency in the key beverage-only category, continued strong momentum in online sales and potential dividend announcement.
The company has $53 million cash on the balance sheet as of first quarter 2016.
Additionally, the analyst noted a more favorable COGS outlook given FX hedges that support an outlook for a flat FX impact to COGS in the first quarter and favorable in the second quarter.
Further, Bania has increased price target by $3 to $16, implying a potential upside of 21 percent over Wednesday's close.
At time of writing, shares of David's Tea were up 5.77 percent to $13.94. The stock has gained about 8 percent this year.
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