Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, specialty coffee company Green Mountain Coffee Roasters (Nasdaq: GMCR ) has received the dreaded one-star ranking.
With that in mind, let's take a closer look at Green Mountain's business and see what CAPS investors are saying about the stock right now.
Green Mountain facts
|
Headquarters (Founded) |
Waterbury, Vt. (1981) |
|
Market Cap |
$4.2 billion |
|
Industry |
Packaged foods |
|
Trailing-12-Month Revenue |
$1.2 billion |
|
Management |
CEO Lawrence Blanford (since 2007) CFO Frances Rathke (since 2003) |
|
Return on Equity (Average, Past 3 Years) |
21% |
|
Cash/Debt |
$9.0 million / $274.0 million |
|
Price-to-Earnings (GMCR and S&P 500) |
61.8 and 13.7 |
|
1-Year Return |
64% |
|
Competitors |
Starbucks (Nasdaq: SBUX ) Sara Lee (NYSE: SLE ) Peet's Coffee & Tea |
Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 36% of the 306 All-Star members who have rated Green Mountain believe the stock will underperform the S&P 500 going forward. These bears include Motley Fool Hidden Gems co-advisor Seth Jayson (TMFBent) and TMFDeej, both of whom are ranked in the top 1% of our community.
A few months ago, Seth encouraged Fools to look past Green Mountain's soaring sales: "Wow, folks sure seem impressed by topline growth. My look at earnings of various types finds, well, not much. All the revenue growth in the world isn't going to help if [Green Mountain] ain't making much dough for shareholders."
Despite whopping sales growth, Green Mountain has habitually posted negative to low single-digit cash king margins over the past decade. In fact, Green Mountain's lack of cash generation, coupled with a soaring stock price, has it currently trading at a stiff price-to-operating cash flow of over 100. For perspective, rivals Starbucks, Sara Lee, and Peet's sport price-to-cash flow ratios ranging from the low to mid-teens. While a few Wall Street analysts have listed Green Mountain as the perfect takeover target for food giants hankering to get into the specialty coffee game, including Coca-Cola (NYSE: KO ) , Kraft (NYSE: KFT ) , and PepsiCo (NYSE: PEP ) , it's tough to imagine a substantially higher offer than today's already super-rich price.
CAPS All-Star TMFDeej sums up the bear case:
As I search for a few select shorts to hedge my mostly long CAPS portfolio, [Green Mountain] seems to fit the bill. I use a Keurig at the office and it's not bad, but I don't think that the company will experience the rapid profit growth that Mr. Market currently seems to be pricing in. One major headwind that Green Mountain faces is a huge increase in the price of coffee beans, which according to Barron's account for nearly a quarter of the Company's cost of goods sold. Coffee bean prices recently hit a twelve-year high. ...
In this sort of economic environment, it's easy to see consumers being hesitant to pony up a premium price for the convenience of Green Mountain's coffee products, when the good old coffee pot will do the trick at a fraction of the price.
What do you think about Green Mountain Coffee Roasters, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!
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Report this Comment On September 07, 2010, at 10:28 AM, refriedbean wrote:
Your wrong.
Report this Comment On September 07, 2010, at 10:43 AM, midnightmoney wrote:
tell us why, frijole; i'm all ears! I love the coffee and love the company, but the writer makes a well-reasoned case as far as I can tell.
Report this Comment On September 08, 2010, at 11:27 AM, refriedbean wrote:
O.K. Burrito breath. As I write this GMCR is up $2.53/share on the news that they raised prices to be in line with their raw material cost. If you short you will lose your shorts.
Report this Comment On September 08, 2010, at 1:21 PM, kkconway wrote:
Green Mountain is too risky to short! Sure, it MAY tank, but I suspect that there are way better, safer companies to short. For example, Delia's (DLIA), a lame retail outfit, comes to mind.
For my money. CMCR is just as likely to soar once more, if the economy and consumers begin to come around. For now, this is a better stock to leverage for volatility using options. That's tricky, too, but can easily be done where you ensure you don't have your head handed to you, as you can with selling short. Any option experts want to enlighten the masses on how to do a spread or iron butterfly or something? I'm all ears. Innagoddadavida, baby!
Report this Comment On September 08, 2010, at 2:07 PM, reggidmalc wrote:
MF has been consistently wrong about GMCR (while pumping SBUX). The major fault with all their analysis is comparing a rapidly growing company (GMCR with slow growers like KFT, MCD or non-growers like SBUX (closed 600 stores so same store comps would not be revealed). The metrics are simply not comparable. I take the 1 star CAPS rating and the wrong-headed MF analysis as a contrary positive. Short squeeze here we come!
Report this Comment On September 08, 2010, at 2:30 PM, refriedbean wrote:
Exponential increase in sales cures every woe, eventually. Refriedbean 2010
Report this Comment On September 08, 2010, at 5:00 PM, midnightmoney wrote:
refried bean,
Thank you, that helps a lot.
Report this Comment On September 08, 2010, at 10:31 PM, Mstinterestinman wrote:
Its jnot just strong growth but a strong brand and great management as well. Margins have actually improved somewhat and as they leave hyper growth mode they will increase margins more and imporve cash flows as well. They control the specialty coffee market by a wide margin and have plenty of room to grow quite a bit. Sometimes a great company demands a premium. I bought in at 26 personally with the big run up I look at it as a hold but just my take.
Report this Comment On September 20, 2010, at 2:57 PM, zkhandwala wrote:
I hope no one took kkconway's advice and shorted DLIA this month!
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