Green Mountain Coffee: I Woke Up and Smelled the Coffee a Little Too Late

In 2006 I started looking at a company called Green Mountain Coffee (GMCR). Then it traded at $12 and change (split adjusted) and was earning $.39 a share annually. I liked the coffee but it traded at a PE of 30 times earnings and despite growing revenues 40% in 2005 over 2006, a rise in expenses caused earnings to dip in 2006 over 2005. So, I decided to stay away but check on it occasionally.

2007 rolled around and even though earnings jumped over 40%, the share prices ran ahead of that and its PE that year ballooned to over 50 times earnings. Not exactly a value.

2008 came and the stock just kind of slowly drifted a bit higher while earnings jumped another 67% but, the PE still sat at 50 times earnings. Still no value.

So, why am I sick about it? It was at this point, mid 2008, I stopped watching it. Then came October 2008 and the market sell-off that took shares down to $24 each, which when one considers the $1.90 they should earn this year means shares traded at 12 times earnings growing >50% a year. At this point, shares were a great value (there is of course more to the analysis of the company but I am trying to make a general point here).

Now, that is not the worst part...

Back in Feb. 2007 I actually wrote about how McDonald's (MCD) was going to win the coffee wars over Starbucks (SBUX) because they were using, at least in the Northeast, the "Newman's Own Organic" coffee made in conjunction with GMCR (the deal was recently extended). I apparently neglected the effect this would have on GMCR sales while focusing on McDonald's and by extension their effect on Starbucks.

Later that year we were at a friend's house and they had a "Keurig K-cup" coffee maker (the company was purchased by GMCR). My wife I used it and thought (and still do) that it was one of the greatest things ever made. It was so great that anyone who came to our home after inquiring as to what it was and receiving a demo from us, instantly loved it and wanted one.

We have given out no less that 5 of them as gifts with the explanation of the "great deals" GMCR gives on the coffee "that is wicked good". Many of them in turn, have either given one as a gift OR had friends who, after seeing theirs, then got one of their own. I am seriously doubting the chance my experience is that unique to other people and that they are not seeing the same thing happen. BUT, I neglected to turn this into an investing idea because "GMCR was an expensive stock vs earnings". It was, but not in October 2008 after it just recently left my radar..

Then, in April this year GMCR signed a deal to sell the makers and coffee in thousands of Wal-Marts (WMT) across the U.S.

Today's share price? $79....For those wondering why I did not buy on the Wal-Mart news, it was too late. The deal was announced after hours and the stock jumped from the $50s to the $70s almost instantly.

That would have been a cool 229% in 6 months in perhaps the most dreadful market in our lifetime...and it was in my cup right in front of me every single day...

Lesson? If you have a good company with a great product whose stock may be a bit expensive.....DO NOT EVER LET IT FALL OFF YOUR RADAR.......

Disclosure: No position... and sick over it

Comments

[Charlie 13:]

I'm sick too because I'd been watching GMCR over the past few months when its low was around 36. I just didn't have the money at the time and who could have predicted what it did? It could have easily done what many did in the late fall of '08 and I just didn't want to pay that and have it drastically drop off. Ah well, the ups and downs of the stock market. If only... And you can't be lucky all the time.

May 19 01:10 PM

[vpwinner:]

Best article I've read in a long time. Well-written, interesting and I learned something. And, it went well with my morning cup of Folgers.

May 20 09:41 AM

[Krissie:]

yeah, I'm sick too...

May 20 06:40 PM

[vtinvestor:]

I have been in and out of GMCR stock for around 5 years and have made some decent money on the rips and dips but still, like you, missed not just this last rip but the one about 3 years ago when the stick hit the century mark and split 3-1.

I do have the advantage of living about 20 miles away from the company in Waterbury. Like another company in the area, Ben & Jerry, Green Mountain Coffee has been way ahead of curve on going green and pioneering the concept that a company can be profitable AND socially responsible both locally and globally.

A few months ago I got back in at $32, sold it a few days later at $44. That was smart, right? When it got to $50 I was ready to jump back in at around $40 but like you even tho I watch it pretty closely I missed the jump from $50 to $70.

I do want to add that IMHO it was more of the reported pop in earnings than the Walmart deal that pushed the stock up so fast that day.

The bottom line, you missed the boat this time, I missed it twice but still made some money on some of the rips and dips. The stock will be splitting 3-2 , so maybe it's another chance to get back in. Can it do it 3 times since 2006?

Personally, I'm gonna wait. After the last split it pretty much traded sideways for months then started to take off. Sure, the ferry has left the dock but if the history of this stock holds true, it will be back for another run.

-from a dirt road in Vermont :D

Jun 08 11:21 AM