Is Green Mountain Coffee Roasters a Buy Now?

With shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) trading around $105, 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, 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. Green Mountain Coffee Roasters 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 Green Mountain Coffee Roasters to see rising profits.

Do you want to know the secret to Green Mountain’s K-Cup business? It realizes gains whether or not its respective pods are the ones enjoying newly found popularity. When the Keurig coffee machines first hit the market, Green Mountain K-Cup pods were the ones most frequently getting their brew on, no questions asked. These days, the pods don’t enjoy as much of a monopoly over the market, but Green Mountain still isn’t complaining. Why? Many of the most popular brands are actually owned or sold by Green Mountain, so the Waterbury, Vermont-based company is still reaping the benefits when their partners’ respective K-Cups get sold in high frequencies. Bloomberg highlighted that reality in its report Friday and explained that Green Mountain owns or sells a number of the most popular K-Cup brands — from Donut House to Revv — and therefore, it still enjoys a trust over many K-Cup sales.

Even those partner brands that Green Mountain doesn’t own, such as Newman’s Own, helps boost the company’s business because Bloomberg reports that Green Mountain pays royalties to a brand to produce and sell pods with a different label, or as is the case with Starbucks (NASDAQ:SBUX), Green Mountain supplies K-Cups to the coffee chain, and Starbucks handles the retailing. Pretty nifty deal, right? No wonder spokesperson Katie Gilroy says, via Bloomberg, “We’re indifferent as to whether we’re selling our own brand or a licensed pack.”

T = Technicals on the Stock Chart Are Strong

Green Mountain Coffee Roasters stock has been surging higher in the last couple of months. However, the stock is currently pulling back. 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 neutral to 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

42.98%

6%

4%

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

April Options

Flat

Average

May Options

Flat

Average

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

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

30.00%

42.63%

65.22%

50%

Revenue Growth (Y-O-Y)

3.58%

8.53%

11.26%

13.53%

Earnings Reaction

26.23%

14.13%

-3.50%

27.84%

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

P = Excellent Relative Performance Versus Peers and Sector

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

Green Mountain Coffee Roasters

Starbucks

McDonald’s

Dunkin’ Brands

Sector

Year-to-Date Return

39.98%

-7.31%

-2.00%

7.39%

10.51%

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

Conclusion

Green Mountain Coffee Roasters provides coffee and related products to eager consumers around the world. The company realizes gains whether or not its respective pods are the ones enjoying newly found popularity. The stock has been surging higher over the last couple of months, but is currently pulling back. 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, Green Mountain Coffee Roasters has been a year-to-date performance leader. Look for Green Mountain Coffee Roasters to continue to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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