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You know that Green Mountain Coffee Roasters (Nasdaq: GMCR ) has fallen out of favor when Barron's -- a weekly publication that often offers up contrarian views -- is pitching the cascading coffee company behind the Keurig single-cup brewing system.
"The Case For Green Mountain Coffee Roasters" is the pitch on this weekend's front cover.
The related story is a profile of Goodnow Investment Group and general partners that oversee the firm's long-short hedge funds.
Bradley Purcell offers a timely defense of Green Mountain. The stock temporarily fell below $20 last week, and that's the first that we've seen that happen since late 2009.
The bearish case for Green Mountain is well-known. K-Cup patents are expiring in three months and third parties are ready to pounce. Cynics have had accounting and inventory concerns, but now the company itself is coping with slowing growth that it wasn't able to publicly predict.
However, Purcell offers a rosier view of the situation.
Yes, certain patents expire in September, but why did Starbucks (Nasdaq: SBUX ) and Dunkin' Brands (Nasdaq: DNKN ) ink multiyear agreements last year? Could it be that the value in Green Mountain as a distributor -- including deals for the company's new Vue coffeemaker and its Keurig makers that still have years of patent protection -- has benefits beyond simply trying to go it alone on the K-Cup side?
Purcell also refers to point-of-sale data that show that consumer demand is still strong. The recent hiccup is more of an inventory-management issue. That may bode poorly for Green Mountain's management, but it's better to have a strong product and weak management than a weak product with strong management.
Purcell sees Green Mountain able to grow its revenue at "a rate likely north of 20% for the foreseeable future," making the stock a screaming value at nine times this fiscal year's earnings and less than seven times next year's projected profitability.
It's true that bulls have been making this argument all the way down, but it's a thesis that gets more compelling as the stock gets cheaper. Green Mountain isn't going away. Even the availability of cheaper third-party K-Cups may benefit the company by giving it the flexibility to raise prices on its brewers.
Razors can become blades. Keurigs can become K-Cups. The value brewing is too tempting to ignore.
Brew ha ha
Shares of Green Mountain have still handily beat the market since I originally recommended the java heavy to Rule Breakers subscribers three years ago. It's lost a lot of ground -- and grounds -- lately, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report tells all. Check it out before it's gone.