Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of single-serving coffee king Green Mountain Coffee Roasters
So what: Green Mountain's earnings announcement actually had the hallmarks of a report that would send shares plunging. Both revenue and earnings rose from last year -- 21% and 30%, respectively -- and the adjusted earnings-per-share tally of $0.52 topped analysts' average estimate of $0.49. However, revenue of $869 million was short of the $873 that Wall Street was looking for. Worse, the company delivered an earnings outlook for all of 2012 and 2013 that was short of prevailing outside estimates.
Now what: If the jump in Green Mountain's stock price has you scratching your head, consider the drastic change in the way the market is valuing the company. At the end of 2011, the stock was trading at a trailing-earnings multiple of 34. Today, following a stock-price decimation on the order of 80% over the past 12 months, it fetches roughly eight times its trailing earnings. As such, while investors of years past were betting heavily on an incredibly successful future for Green Mountain, investors today need the company to do very little in terms of growth for their investment to be successful.
So, when Green Mountain's management got on the earnings conference call and walked listeners through the changes it's made to better manage the business in the years ahead, the glimmer of optimism was enough to convince investors that the stock's rock-bottom valuation made it a worthwhile bet.
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Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.