Humans are a zealous lot. Wars, sport, and even entertainment like American Idol all show off the ease with which we attach ourselves to causes. Sometimes, this makes us do things like wave big foam fingers with "We're No. 1" written on them at a Northwestern game -- it's fun, but it's not accurate. Sometimes, we can lose a bit more. Overzealous investors can lose money or, even more frustratingly, lose the chance to have made more money.
Green Mountain Coffee Roasters (NASDAQ:GMCR) is a stock that people have been zealous about. During the last 12 to 18 months, that's paid off, with Green Mountain's stock easily beating out the S&P 500. During a shorter time frame, the math isn't as simple. For investors not already on top with Green Mountain, being zealous may not be the best choice.
Green Mountain's "chicken in every pot" plan
In a presentation given last year, Green Mountain highlighted one of its broad goals -- to have a Keurig brewer on every counter. It's the sort of goal that companies declare without ever meaning to actually fulfill it. It's like a foundation saying that it's going to help feed every hungry child. That's not true, but it's a vision of perfection to aim for. What these statements really offer is a clear view of what's important to the company or organization.
In Green Mountain's case, what's important is an expansion of the company's brand awareness. It's a goal that SodaStream has also made explicit. While both brands are well-known, they still fall short of the name recognition that the biggest brands in the world command.
Back to zealotry. It's these sorts of goals that get people fired up about Green Mountain. As an investor, you need to think not about the goal, but about how close you believe Green Mountain can get to the goal. Right now, the company has more than 30 million installed bases. What sort of growth can we expect during the next year?
How high can Green Mountain fly?
Green Mountain's brewer sales grew by 16% during the last fiscal year, and by 40% in fiscal 2012. While the rate is declining, there are also fewer people to sell the brewers to, and there's probably some theoretical limit on the sheer volume of brewers that can be sold in any one year. What investors need from Green Mountain is a steady increase in brewer sales that will fuel its consumables sales.
Key to that is the company's expansion of its non-home-based brewer line. Business-based products offer the company a way to tap a new market in which consumption per machine could be much higher, driving up coffee packet sales. That shifts the sales mix even further toward the K-Cup side of the equation, and would fuel strong revenue and margin growth.
But breaking into the business world is something that Green Mountain may have difficulty with. The Keurig OfficePRO sells for $130, while a Mr. Coffee sets your boss back a mere $40. Green Mountain's answer to traditional pot-brewed coffee is the Bolt, which uses large K-Cup-style packs to brew a full pot of coffee. The product isn't available yet, and management isn't expecting a miracle.
That's one of the things that Green Mountain is now doing well -- setting realistic expectations. For instance, talking about the Bolt system, CEO Brian Kelley said, "I would say how long before it makes a big impact on sales, it's going to be a while."
Matching expectations to forecasts
Investors should shoot to match that expectation when making their investment decisions. Green Mountain has grown fast, but the path gets harder from here on out. The Bolt, the Keurig 2.0, and other developments should give Green Mountain plenty of gas for the long haul. Every day, this looks more and more like a solid business. Next time you're cheering on Green Mountain, put the foam finger away, and just be happy that the wins keep racking up.
Making intelligent investment decisions
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Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and SodaStream. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.