Should Green Mountain Coffee Roasters Be In Your Portfolio?

With shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) trading around $56, 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

Green Mountain Coffee Roasters 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, whole bean and ground coffee selections, as well as other specialty beverages, including tea, hot apple cider and hot cocoa also offered in K-Cup portion packs. Green Mountain Coffee Roasters operates in three segments: the Specialty Coffee business unit, the Keurig business unit, and the Canadian business unit. Through its segments, Green Mountain Coffee Roasters provides products  that are seeing an increasing demand from consumers around the world.

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T = Technicals on the Stock Chart are Strong

Green Mountain Coffee Roasters has seen a significant run for most of the last ten years. The last couple of years have not been so great for the company as it has suffered from negative press. The stock may be on its way to a recovery, though. 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, Green Mountain Coffee Roasters is trading above its rising key averages which signal bullish price action in the near-term.

GMCR

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Green Mountain Coffee Roasters Options

78.82%

90%

92%

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

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish 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 Green Mountain Coffee Roasters’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Green Mountain Coffee Roasters look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

6.06%

20.83%

24.32%

31.82%

Revenue Growth (Y-O-Y)

15.63%

32.99%

21.19%

36.65%

Earnings Reaction

-5.35%

27.32%

26.52%

-47.75%

Green Mountain Coffee Roasters has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been very emotional about Green Mountain Coffee Roasters’s last four earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Green Mountain Coffee Roasters stock done relative to its peers, Starbucks (NASDAQ:SBUX), Farmer Bros. (NASDAQ:FARM), Coffee Inc. (NASDAQ:JVA), and sector?

Green Mountain Coffee Roasters

Starbucks

Farmer Bros.

Coffee Inc.

Sector

Year-to-Date Return

37.88%

9.81%

7.69%

-4.29%

13.05%

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

Conclusion

Green Mountain Coffee Roasters provides products that are seeing heavy demand by consumers across the globe. The stock has been an excellent long-term performer but has suffered from negative press in recent years. Earnings and revenue figures have displayed consistent growth which has resulted in higher prices for the stock. Relative to its peers and sector, Green Mountain Coffee Roasters is leading in performance by a wide margin. Look for Green Mountain Coffee Roasters to continue to OUTPERFORM.

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