Is Green Mountain Unsustainable?

My Rising Stars portfolio celebrates socially responsible investing. So why did I choose benevolent shoemaker Timberland (NYSE: TBL  ) as my debut buy recommendation earlier this month, instead of similarly saintly Green Mountain Coffee Roasters (Nasdaq: GMCR  ) ?

After all, Green Mountain Coffee Roasters has racked up years of appearances on the "100 Best Corporate Citizens" list (compiled first by Business Ethics, then CRO and Corporate Responsibility Magazine). Back in 2006, it was even named the best corporate citizen, beating out Timberland, which came in at No. 6. In 2007, Green Mountain became the first company to earn the list's top spot for two years running.

Subsequent changes to the annual list's methodology meant that Green Mountain dropped off the list for a while. This year, it returned at the No. 39 mark, and ranked within the top 10 in the food and beverage category.

Green Mountain's obviously much more than the company behind Keurig's single-cup brewers, or a major rival to Starbucks (Nasdaq: SBUX  ) , Peet's (Nasdaq: PEET  ) , and Caribou (Nasdaq: CBOU  ) . The company continues to focus on the environmentally friendly and socially progressive efforts that have long been part of its operations. Green Mountain can proudly boast about distributing fair-trade coffee, pursuing initiatives to decrease its carbon footprint, encouraging employee volunteerism, and running programs to help reduce poverty and hunger.

But for all its admirably far-sighted policies, Green Mountain's success as an investment may be far less sustainable. Over the years, I've been bearish on Green Mountain not only for its generally high valuations, but also because the company's acquisitive nature made its financial statements difficult to read. (Simple, easily understood investments provide a great way to stay out of trouble in the stock market.)

Worse yet, the company's sparkling image may not extend to the cleanliness of its accounting. The Securities & Exchange Commission recently started an inquiry into Green Mountain, apparently concerned about how the company books its revenue. Although the company hasn't been charged with anything, even the possibility of some sort of impropriety should encourage investors to pass on Green Mountain for now.

Environmental initiatives are great, but responsible investors should focus first and foremost on the quality of a business and its operations. If today's small concerns become tomorrow's major problems, unwary investors could suffer. That's why Green Mountain didn't make the first cut for my Rising Stars portfolio.

Peet's Coffee & Tea is a Motley Fool Big Short short-sale recommendation. Green Mountain Coffee Roasters is a Motley Fool Rule Breakers pick. Starbucks is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. 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 Fool has a disclosure policy.


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  • Report this Comment On November 15, 2010, at 7:19 PM, ompompanoo wrote:

    So you've been consistently throwing cold coffee on GMCR since at least your article in February 2007. Meanwhile the shares of SBUX you have been holding have gone down in value while GMCR has perked all the way up to seven times the February 2007 price. Maybe it's time for you to switch brands, buy a Keurig perhaps, and enjoy some really good coffee produced by a Vermont company!

  • Report this Comment On November 19, 2010, at 2:48 PM, TMFLomax wrote:

    Thanks for the comment ompomanoo. It's true, I've long been worried about the high valuation, but now the other issues bug me too. We'll see though. (And a friend of mine has a Keurig and loves it, and I have to admit I have enjoyed the coffee.)

    More folks are asking some questions about what's up with current situation though:

    http://blogs.barrons.com/stockstowatchtoday/2010/11/19/green...

  • Report this Comment On November 20, 2010, at 1:34 PM, ompompanoo wrote:

    Alyce, perhaps you should have used the stock price's reaction to Herb's disparaging comments as an opportunity to buy. Nice aftermarket reaction as the scale of the impact from the accounting snafu becomes apparent. Looks like we'll be seeing a lot of short covering!

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