1-Star Stocks Poised to Plunge: Green Mountain Coffee?

By Brian D. Pacampara | More Articles
March 30, 2011 | Comments (9)

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, specialty coffee brewer 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	$9.08 billion
Industry	Packaged foods
Trailing-12-Month Revenue	$1.59 billion
Management	CEO Lawrence Blanford (since 2007) CFO Frances Rathke (since 2003)
Return on Equity (Average Past 3 Years)	15.9%
Cash/Debt	$32.9 million / $1.09 billion
Competitors	Kraft (NYSE: KFT ) Peet's Coffee & Tea (Nasdaq: PEET )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 37% of the 1,143 members who have rated Green Mountain believe the stock will underperform the S&P 500 going forward. These bears include useless33 and All-Star georcole.

Earlier this month, useless33 wrote that the Green Mountain bear case all boiled down to price: "Single serve coffee is convenient ... paring with [Starbucks (Nasdaq: SBUX ) ] is strategically relevant for both companies, but the price does not justify the earnings."

In fact, Green Mountain currently sports a rather lofty forward P/E of 36.2. That represents a premium to listed competitors Kraft (12.5) and Peet's (25.7), as well as its new giant partner, Starbucks (20.4).

CAPS All-Star georcole offers an inside view of the underperform argument:

I work in one of the largest grocery store chains in the Northeast. [Green Mountain] recently decided that they are not going to make the little bags of coffee so that we can brew our coffee by the pot anymore. [Green Mountain] made that decision, not us. So now we are going to switch over to another brand of coffee. How many other grocery stores, gas station convenience stores, restaurants, etc. are now going to have to go elsewhere for their coffee? Not a very good move [Green Mountain].

I know that they just signed a deal with Starbucks, but that is not going to be worth the increase that [Green Mountain] has experienced since the deal was announced.

If you put the two previous points together you are left with the impression that [Green Mountain] is concerned about picking up some sales (Starbucks), but not too concerned about losing a lot of regular customers that stop at the store on the way to work everyday for their cup of coffee. Why would they willingly give up that regular morning commuter crowd? I am baffled.

What do you think about Green Mountain, 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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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Green Mountain is a Motley Fool Rule Breakers pick, and Motley Fool Options has recommended buying puts on it. Motley Fool Alpha has opened a short position on Green Mountain. Peet's is a Motley Fool Big Shortshort-sale selection. Starbucks is a choice of Stock Advisor, and the Fool owns shares of it. 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 Fool's disclosure policy always gets a perfect score.

Read/Post Comments (9) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On March 30, 2011, at 10:36 AM, NHWeston102 wrote:

Without writing your readers my autobiography, I'll simply state that I have been with GMCR since 1996. I have bot, sold, rebot, resold, that stock all those years. Profits on GMCR put my kids through college, helped pay for my house and, until recently, was the lead stock in my portfolio. I have been unimpressed with the naysayers, the bears, the warners UNTIL NOW!! You see, I also drink the stuff - love it, in fact. Thus, if georcole is right and GMCR is getting out of the "bag business", then the company is committing both retail and customer sucide! If they think "dropping the bag" will force devotees to switch to Keurigs, I'm very skeptical - if anything, people will feel betrayed and take that resentment out on the brand. The only explanation I can offer is that they are thinking of shifting monies into some other investment or paying down debt. Very not good!! I'm going to trim my holdings as a result of this information and thank you, georcole, for the alert.
Report this Comment On March 30, 2011, at 11:34 AM, David369 wrote:

You have to admit GMCR has created a fad "wave" that has beat out the Tassimo (or whatever it's called) group. Maybe they figure they will just concentrate on the k-cups or maybe they think they have to at this point to keep the expansion going. I don't know what they are thinking or planning. I hope they are smart enough not to cut off their nose to spite their face. I see the stock continuing upward as long as K-cups are popular. How long will that last? I don't know and that's why even though I like the up trend and I think there is still good money to be made over the short term (1-2 years) I have not invested in the stock. I will enjoy the over priced little k-cups in the Keurig machine I got for XMas which I like since I'm the only coffee drinker and I don't have to make a whole pot or wait long to make a single cup with over 225 flavors to choose from. But, they are still expensive compared to buying instant coffee and I have not yet found a really good cappucino.
It's the new version of the MR COFFEE. Yeah, MR Coffee is still around (I think) but it is no longer a fad like it was. I expect the same for the K-cups.
Report this Comment On March 30, 2011, at 11:37 AM, MajorBob04 wrote:

GEORCOLE wrote "I work in one of the largest grocery store chains in the Northeast. [Green Mountain] recently decided that they are not going to make the little bags of coffee so that we can brew our coffee by the pot anymore."
Is this really true? Did they really stop selling their coffee in bags?
I don't see any press release from GMCR to that effect and you can still buy coffee in bags from their website.
Report this Comment On March 30, 2011, at 4:16 PM, allabenleed wrote:

Until I see in writing from Green Mountain that they are not going to market bagged coffee anymore I will not believe it. I am certainly not going to believe it from yet another FOOL GMCR basher.
Just keep shorting FOOLs.
Report this Comment On March 30, 2011, at 5:53 PM, allabenleed wrote:

Let me quote from Green Mountain investment services email I just received:
"We have no intent to discontinue our bagged coffee format."
To CAPS All-Star georcole I say check your sources before you go making statements that are not true.
Report this Comment On March 30, 2011, at 8:38 PM, strabodon wrote:

Gmcr is still a growing company,but the recent price per share has been helped by a hedge fund or funds.This stock has been steered since last December in after hours.This price will hold until option expiration for April.Be aware that March 31 is the end of the quarter so all the momentum players that have window-dressed their holdings,might decide to go elsewhere on the 31st, or Friday April 1st when the employment stats come out,A good employment report might already been discounted into the price of a lot of these companies.Imo the stock price should trade no higher than mid 50s.
Report this Comment On March 31, 2011, at 4:13 AM, louchios wrote:

GMCR has an amazing product that is conveniant, clean and considering there's no waste, cheap. It's the future of home and business coffee, tea, and all other hot beverages. And as far as there P/E is concerned, they are growing and reinvesting.
Report this Comment On March 31, 2011, at 2:24 PM, steveatthebeach wrote:

Once again people reporting bogus information.
The information about bag sales stopping is NOT TRUE. Don't understand why people report totally untrue information. It must just be some bazaar twisted sense of humor or a desire to hurt people that prompts someone to spread fake rumors that some people are going to believe. What goes around comes around people.
SHAME ON YOU!
Go GMCR!
Report this Comment On April 04, 2011, at 8:09 AM, cavemanvt wrote:

it is not true that GMCR is no longer making the "one pot" bags. In fact they have purchased 2 new high speed machines to keep up with the demand for these fractional packages. BUY GMCR, its going to continue its steady climb!!!

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