Is Green Mountain a Bargain Here?

With shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) trading at around $45.30, 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

The most amazing stat for Green Mountain is a 37 percent short position on the stock. This kind of short position is usually found when a company has poor margins, a lack of growth, poor debt management, poor management in general, consistent losses, and it’s in a weak industry. If you’re familiar with Green Mountain, then you know that this company doesn’t fit the description whatsoever. However, shorts have been happy over the past couple of days. Will it last?

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Q1 EPS came in at $0.70, which beat the $0.65 consensus. Q1 revenue came in at $1.34 billion compared to $1.16 billion for the same quarter one year ago. The problem wasn’t with results, but with guidance. Green Mountain expects Q2 EPS between $0.70 and $0.75. This was actually in-line with the consensus of $0.71. However, the sales forecast for the current quarter was 14 percent to 18 percent, which was lower than Wall Street’s expectations of 20 percent. FY2013 EPS guidance was originally $2.64 to $2.74. It’s now $2.72 to $2.82.

Let’s take a look at some important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong  

The debt-to-equity ratio for Green Mountain is strong.  

Debt-To-Equity

Cash

Long-Term Debt

GMCR

0.24

$58.29 Million

$540.54 Million

SBUX

0.11

$2.46 Billion

$549.60 Million

FARM

0.35

$23.14 Million

$25.00 Million

 

T = Technicals on the Stock Chart Are Mixed    

Green Mountain hasn’t performed well over the past year. During that time frame it has underperformed Starbucks Corporation (NASDAQ:SBUX) and Farmer Brothers Co. (NASDAQ:FARM). However, the past few months have been very strong for Green Mountain.

Starbucks is the only company that of the three that offers yield, which is currently 1.50 percent.

1 Month

Year-To-Date

1 Year

3 Year

GMCR

12.96%

9.65%

-30.56%

69.27%

SBUX

1.96%

5.75%

17.70%

170.30%

FARM

-6.02%

-9.15%

25.45%

19.57%

 

At $45.30, Green Mountain is still trading above all its averages.  

50-Day SMA

41.23

100-Day SMA

33.18

200-Day SMA

29.06

 

E = Earnings Have Been Steady            

Earnings and revenue have improved consistently on an annual basis for many years. This is rare as well as impressive.

2008

2009

2010

2011

2012

Revenue ($)in billions

492.52M

786.14M

1.36

2.65

3.86

Diluted EPS ($)

0.19

0.45

0.58

1.31

2.28

 

We already know what happened this quarter. Now let’s take a look at previous quarters as well.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

711.88

1.16B

885.05

869.19

946.74

Diluted EPS ($)

0.48

0.66

0.58

0.46

0.58

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

There has been volatility in brewer and K-Cup shipments, but that volatility should be ignored. Why? Because coffee is mildly addictive for most people. This is important because it’s very difficult to find poor performers that sell addictive products such as coffee, tobacco products, and alcohol. You might find a few poor performers, but the vast majority of these companies are winners over the long haul. And coffee has the benefit of not being heavily taxed like other addictive products.

Conclusion

Green Mountain is a consistently profitable company with strong cash flow, solid margins, and weak direct competition. Green Mountain is also in the right industry. If there’s a bump in the road, then it’s more likely to be an opportunity than a danger sign.

Green Mountain is a long-term OUTPERFORM.

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