3 Reasons Keurig Green Mountain Is Still a Buy

When a stock rises as much as Keurig Green Mountain has, some investors may think they have missed the boat. The good news is that with this company, it's not too late.

Jun 24, 2014 at 11:35AM

For the last few years, there has been a battle over the future of what is now Keurig Green Mountain (NASDAQ:GMCR). Some investors publicly decried the company as a fad. Other investors suggested that the company changed the way coffee is made for the better. Now that Coca-Cola has decided to take a position in the company, the question of whether Keurig Green Mountain is a fad has been decided. However, for those who think they may have missed the upturn in the stock, there are three reasons shares still look like a buy today.

Slow and steady
Those who missed out on buying Keurig Green Mountain when the stock was crushed two years ago probably think they missed the boat. With the stock up from the low $20s to around $120, investors have been rewarded handsomely. In the same time frame, Starbucks (NASDAQ:SBUX) has turned around nicely and has been helped by the success of Keurig Green Mountain's K-Cup franchise.

SodaStream (NASDAQ:SODA) is a company that was thought of as a direct beneficiary to Keurig Green Mountain's business plan. In theory, SodaStream could sell its starter kits and flavors in the same way that Keurig Green Mountain sells brewers and K-Cups. However, SodaStream investors are finding out that emulating Keurig Green Mountain isn't as easy as it looks, as the company's earnings fell off a cliff in the recent quarter.

Though Keurig Green Mountain has been a champion growth stock for a while, for the next several years the company looks like a growth and income play. Analysts are calling for 17% earnings-per-share growth annually for the next few years. While this is less than the huge growth that investors have become accustomed to, the company's introduction of a dividend changes the stock's appeal.

The first reason investors should look to buy Keurig Green Mountain today is for the company's mixture of growth and income, an attractive combination of traits. Though its $0.25 quarterly dividend means a yield of less than 1%, Starbucks isn't exactly setting the world on fire with its 1.4% yield. SodaStream doesn't pay a dividend and seems to have questionable growth prospects.

Many investors never saw this coming
The second reason Keurig Green Mountain is a buy today is the company's impressive operating cash flow growth. In the last six months, the company's core operating cash flow (net income plus depreciation) increased by more than 23%.

Even Starbucks wasn't able to match Keurig Green Mountain's cash flow performance. In the last six months, Starbucks improved its operating cash flow by slightly more than 18%. On the other end of the spectrum, SodaStream's operating cash flow dove by more than 60% in the last three months alone.

A chilly proposition that could set the stock on fire
If you follow the beverage industry, you probably know that Coca-Cola recently decided to back Keurig Green Mountain with a 10% stake in the company. The third reason investors might consider buying the stock is based on the potential for Keurig Cold.

Though the sparkling-beverage industry overall isn't the growth industry it once was, Keurig Green Mountain wants a part of it. Coca-Cola plans to introduce its lineup of beverages for Keurig Cold when it debuts in 2015. Prior to this news, it was essentially assumed that SodaStream had the home-beverage-preparation business to itself.

However, the industry is changing, and even Starbucks is testing what it bills as gourmet sodas. Though Starbucks is testing the bubbled waters, it's a fair bet that Coca-Cola's knowledge, experience, and relationships in the beverage industry give Keurig Green Mountain a leg up on the competition.

If Keurig Cold is received even half as well as the company's Keurig coffee brewers, this could breathe new life into the company's revenue and earnings growth.

Final thoughts
While Keurig Green Mountain was thrown out like an old cup of coffee just two years ago, the company seems to be back on the right track. With a dividend to appeal to growth and income investors, and strong operating cash flow, Keurig Green Mountain is becoming a respectable stock once again.

If the Keurig Cold is well received, the company's growth days could return. The company has proven its business is anything but a fad. Though the stock isn't cheap, long-term investors may want to add Keurig Green Mountain to their watchlist. This is a stock that could heat up further, and you don't want to be left in the cold.  

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Chad Henage has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, SodaStream, and Starbucks. The Motley Fool owns shares of SodaStream and Starbucks and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers