Will Green Mountain Ever Revisit Its Peak?

With shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) trading at around $39.18, is GMCR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

If you follow this industry at all, then you already know that Joh A. Benckiser Group has agreed to buy Caribou Coffee (NASDAQ:CBOU) for $340 million. The stock gapped up over 30 percent on the news. So, not many people are paying attention to Green Mountain at the moment. However, it deserves attention.

Green Mountain has had a rough year. They have had to deal with patent issues, they reduced their sales forecast for their Keurig single-serve coffee brewers and packs, they had to cope with competition from Starbucks (NASDAQ:SBUX), and they recently missed expectations. Luckily for Green Mountain, Starbucks has failed miserably with its single-serve espresso maker. While Starbucks isn’t likely to go down without a fight, they have already cut prices on their Verismo 580 and V-585.

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On the positive side, Green Mountain has shown excellent growth. That’s the biggest selling point of all, but there are other positives as well, which include a Forward P/E of 12.85, a profit margin of 9.40 percent, over $470 million in operating cash flow, and a short position of 43 percent. That short position could lead to a short squeeze of mammoth proportions. Considering the run the stock has enjoyed over the past three months, perhaps that short squeeze has already begun. After all, this is one of the most unjustifiable large short positions in existence. Let’s take a look at some numbers to see why that’s the case.