Is Green Mountain’s Stock Just Warming Up for a Bigger Run?

With shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) trading around $119, 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.

Green Mountain Coffee Roasters shares fell Wednesday after the company was downgraded over limited details on its forthcoming Keurig Cold beverage maker and a lawsuit over its K-cup business practices. The maker of Keurig coffee makers was downgraded to neutral from buy by Longbow, which cited the stock’s valuation, increased investment spending, and limited details on the Keurig Cold device being developed with Coca-Cola (NYSE:KO). The companies said last week that Keurig Cold will be available in Green Mountain’s fiscal 2015, but Longbow noted the wide potential time frame for the launch date as another reason for the downgrade.

Shares fell nearly 1.6 percent to 117.50 in the stock market today. Shares have been surging since Green Mountain announced its partnership with Coca-Cola and hit a new high on Tuesday. Other analysts still remain bullish on the company. On Tuesday, Williams Capital raised Green Mountain’s price target to $125 from $106 and kept its buy rating on the stock, saying the Coke deal could help turn Green Mountain into a global company by boosting its brand abroad.

T = Technicals on the Stock Chart Are Strong

Green Mountain Coffee Roasters stock has been in recovery mode from a major press setback that occurred a couple of years ago. The stock is currently trading near all time highs and looks set to continue this path. 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

51.30%

10%

8%

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

Put IV Skew

Call IV Skew

March Options

Flat

Average

April 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 minimal 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

56.99%

-5.63%

-2.09%

1.72%

13.74%

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’s shares fell Wednesday after the company was downgraded over limited details on its forthcoming Keurig Cold beverage maker and a lawsuit over its K-cup business practices. The stock has been on a powerful path toward higher prices and is currently trading near all time highs. Over the last four quarters, earnings and revenue figures have been on the rise, which has really excited 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.

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