Green Mountain Rolls in the Green

Just when you think Green Mountain Coffee Roasters (Nasdaq: GMCR  ) might be about to peter out, it just keeps on perking away. Its fiscal third-quarter results spurred a caffeinated rally among investors eager to buy its shares.

Excluding one-time items, Green Mountain's third-quarter net income increased 31% to $18.6 million, or $0.13 per share. Revenue skyrocketed 64%, to $311.5 million. Green Mountain's acquisition of the Keurig single-cup brewing system continues to give it an edge that keeps boosting its net sales higher and higher.

Apparently, Starbucks (Nasdaq: SBUX  ) and Green Mountain are coexisting quite well.  Starbucks' most recent quarter wasn't too shabby, even if some investors spit out the stock. Although the success of Starbucks' instant coffee, Via, would seemingly steer some folks away from Green Mountain's single-cup products, it seems that there's plenty of room for both in the caffeine lovers' market so far.

During the quarter, Green Mountain managed to sell 683 million K-cups -- a 72% boost year over year. Don't forget that K-cups are the recurring, high-margin part of Green Mountain's business. The company's operating margin ticked up to 12.2%, from 12% in the year before.

Many other companies clearly covet a slice of the coffee-slinging market, including McDonald's (NYSE: MCD  ) , Dunkin' Donuts, Peet's (Nasdaq: PEET  ) , and Caribou (Nasdaq: CBOU  ) . But it seems these contenders haven't taken the green out of Green Mountain.

Still, Green Mountain's valuation is reaching seriously high altitudes. It trades at a nosebleed multiple of 61 times trailing earnings, compared to Starbucks' not-exactly-cheap 23 times earnings. Can Green Mountain keep growing fast enough to convince investors that it deserves such a premium valuation? Sip these shares carefully, Fools -- overconfidence could leave you badly burned.

Green Mountain Coffee Roasters is a Motley Fool Rule Breakers pick. Starbucks is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletters free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


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  • Report this Comment On July 31, 2010, at 5:00 PM, Mstinterestinman wrote:

    Its Forward Multiple is only 30 However. I can see 40 dolars by year end easily the market is forward looking so sometimes a great company will demand a premium. Growth is still around 50 to 60 which puts the Peg below one as well.

  • Report this Comment On July 31, 2010, at 5:03 PM, Mstinterestinman wrote:

    Also MCD's cant be looked at as a competitor since Green Mountain is selling them coffee to resell as McCafee

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