Is Green Mountain a Hot Stock?

With shares of Keurig Green Mountain (NASDAQ:GMCR) trading around $107, 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:

T = Trends for a Stock’s Movement

Keurig Green Mountain is engaged in the specialty coffee and coffee maker businesses. The company roasts Arabica bean coffees including single-origin, Fair Trade Certified, certified organic, flavored, limited edition, and blends offered in K-Cup portion packs, and whole bean and ground coffee selections. It also offers other specialty beverages, including tea, hot apple cider, and hot cocoa also offered in K-Cup portion packs. The coffee and relative drink trend has been exploding over recent years. Keurig Green Mountain makes this trend as personal as possible by bringing favorite beverages to the comfort of homes and businesses. As the specialty and related beverage trend operates in full force, look for companies like Keurig Green Mountain to see rising profits.

K-cup coffee pod maker Keurig Green Mountain said on Wednesday it is expanding its partnership with J.M. Smucker Co (NYSE:SJM) with an agreement to make and sell Smucker coffee brands including Folgers in formats compatible with new Keurig brewing systems. It is the company’s latest move to line up more licenses before it launches new brewing systems including the Keurig 2.0 and Keurig Bolt. Keurig Green Mountain also reported better than expected quarterly profit, sending its shares up 6.3 percent to $98 in after-hours trading. Net sales rose 9.7 percent to $1.1 billion, while analysts expected $1.05 billion, according to Thomson Reuters. Keurig also said net income rose 22.4 percent to $162.3 million, or $1.03 per share, in its fiscal second quarter ended March 29, from $132.4 million or 87 cents per share a year earlier. Adjusted profit was $1.08 per share, 14 cents better than expected.

T = Technicals on the Stock Chart are Strong

Keurig Green Mountain stock has been trading sideways over the last couple of months. However, the stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Keurig Green Mountain is trading between its rising key averages which signal neutral price action in the near-term.

GMCR

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Keurig Green Mountain options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Keurig Green Mountain options

40.18%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Keurig Green Mountain’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Keurig Green Mountain look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

16.13%

30.00%

42.63%

65.22%

Revenue Growth (Y-O-Y)

9.78%

3.58%

8.53%

11.26%

Earnings Reaction

17.34%*

26.23%

14.13%

-3.50%

Keurig Green Mountain has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Keurig Green Mountain’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Keurig Green Mountain stock done relative to its peers, Starbucks (NASDAQ:SBUX), McDonald’s (NYSE:MCD), Dunkin’ Brands (NASDAQ:DNKN), and sector?

Keurig Green Mountain

Starbucks

McDonald’s

Dunkin’ Brands

Sector

Year-to-Date Return

41.85%

-10.30%

5.00%

-6.72%

8.45%

Keurig Green Mountain has been a relative performance leader, year-to-date.

Conclusion

Keurig Green Mountain provides coffee and related products to eager consumers around the world. The company said on Wednesday it is expanding its partnership with J.M. Smucker Co and it also reported better than expected quarterly profit. The stock has been trading sideways over the last couple of months, but is currently surging higher. Over the last four quarters, earnings and revenue figures have been on the rise, which has pleased investors in the company. Relative to its peers and sector, Keurig Green Mountain has been a year-to-date performance leader. Look for Keurig Green Mountain to continue to OUTPERFORM.

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