Eye on Insiders: Green Mountain Coffee Roasters

Watching insiders is like participating in a weeks-long stakeout. You expect something to happen, but you don't know what. So you settle in, sip your coffee, and wait for clues to solving the big case.

Here, the "case" is direction: Which way is your stock headed? The "clues" come in the form of insider buying and selling action. Have a look at Green Mountain Coffee Roasters (Nasdaq: GMCR  ) over the past year.

Insider Rating

Moderately bearish
Multiple buys at prices well below what the stock trades for today. CEO has sold plenty but maintains a sizable stake.

Business Description

Grower and packager of coffees is well-known for its support of the organic food movement. Acquisition of Keurig and its K-Cup machines has created astounding growth.

Recent Price

$66.76

CAPS Stars (Out of 5)

*

Percentage of Shares Owned by Insiders

17.22%

Net Buying (Selling)^

($35.2 million)

Last Buyer (% Increase)

William Davis, director
1,500 shares at $36.29 apiece on Nov. 28, 2008
(Purchase bolstered direct holdings by less than 1%)

Last Seller (% Decrease)

Robert Stiller, director
200,000 shares at $73.22 apiece on May 4, 2009
(Sale represented less than 1% of remaining direct holdings)

Competitors

Starbucks (Nasdaq: SBUX  )
Peet's Coffee & Tea (Nasdaq: PEET  )

CAPS Members Bullish on GMCR Also Bullish on

Apple (Nasdaq: AAPL  )

CAPS Members Bearish on GMCR Also Bearish on

Palm (Nasdaq: PALM  )
Goldman Sachs (NYSE: GS  )

Recent Foolish Coverage of GMCR

Beware the Secondary Offering, Or Not
439,000 More Reasons for Starbucks to Worry
1-Star Stocks Poised to Plunge: Green Mountain Coffee Roasters?

Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. Data current as of Aug. 4, 2009.^Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times, they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Moderately bearish
In less than six months since my friend Rick Munarriz's initial recommendation, Green Mountain Coffee has become one of our best-ever picks for Motley Fool Rule Breakers. But now subscribers and investors alike are asking: Can this stock double yet again? Or is it destined to crash, as Akamai (Nasdaq: AKAM  ) has recently?

"The fact that this is a well-run organization with strong financials is indisputable. Yet, something concerns me," wrote CAPS All-Star Alwayzwrong in June:

First, the valuation here is quite high ... especially given the times we are in. More importantly, the volume of insider selling is worrisome. Management is selling simply too many shares for me to be comfortable. All this leads me to believe this will come back down to earth sometime soon.

I get the argument but I'm reluctant to sell this stock from my CAPS portfolio. Green Mountain doubled its profit in the most recent quarter, and the Keurig single-cup machine is a joy, blending two of my favorite things: technology and good coffee. Why sell when this story stock is in the middle of a terrific tale?

The insider action is less pleasing, but it isn't as awful as it seems. Only company founder Robert Stiller has sold on the open market over the past year, and he maintains a hefty ownership interest. If I'm worried about anything here, it's that Stiller has pledged millions of shares as collateral for personal loans, and a 4-million-share secondary offering will create dilution that could water down once-robust returns for investors.

Otherwise, I still like this stock for the long term. Do you agree? Disagree? Log into CAPS today and tell us how you would rate Green Mountain Coffee Roasters.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

Get more of the inside scoop with related Foolishness:

Akamai and Green Mountain Coffee Roasters are Rule Breakers recommendations. Apple and Starbucks are Stock Advisor selections. Starbucks is also an Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers owned shares of Akamai at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool owns shares of Starbucks and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy has its eye on you.


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