Things can change in an instant. The world can change in a minute. We all know this to be true. Today, we saw it for Green Mountain Coffee Roasters (GMCR).
This morning, I wrote an article titled "An Update on 5 Momentum Stocks". It was published shortly before 3:45 PM this afternoon, just about 15 minutes before the close of trading. I mentioned that Green Mountain was at its lowest point since announcing earnings, breaking $60 for the first time Thursday morning, before rebounding. Now, there were some rumors of strategic initiatives between the company and Starbucks (SBUX) that were floated around throughout the day. I said that I thought Green Mountain could trade down to $55 in the near future, before a possible rebound to $65.
I didn't think it would break that level in the next 25 minutes, which it did after the bell. Just minutes after the close, Starbucks announced that it was developing its own single cup coffee system, which it believes it will have ready for the holidays this year.
By 4:10 PM, not only was Green Mountain below $55, it was below $52. In my above-mentioned article, a commenter asked if they should buy on the dip. When I answered "no", the stock was at $51.50. I said that this was terrible news, and that it could be the trigger that shorts have been waiting for, perhaps pushing the stock down to $40 in the not so distant future. Just a handful of minutes later, Green Mountain shares were down to $47. As I write this paragraph, at 4:48 PM, the stock is at $49 (more updates later).
Now, before we jump all over Green Mountain, Starbucks did not announce pricing, availability, or distribution information. It is very well possible that the system will not be available for the holidays, but we assume at the moment that it will. The second question is where can you get it? Will they be selling it at Starbucks, or are they going to partner up with some retailers, like a Bed Bath and Beyond (BBBY), a Target (TGT), perhaps even Wal-Mart (WMT)? We don't know all of the information yet, which makes providing the recommendations in after hours of what to do with the stock basically coin flips. Green Mountain could be at $40 by close of Friday, or perhaps back to $60. We just don't have the whole picture.
As of today, analysts are forecasting Green Mountain's fiscal 2012 revenues to rise by 61.4% to $4.28 billion, and earnings per share of $2.67. These estimates may not really change, because Green Mountain's fiscal year ends in September. If Starbucks' system isn't available until say November, there shouldn't be much impact on Green Mountain's current fiscal year.
The big revisions are going to be to the fiscal 2013 year. Current estimates call for 30.4% revenue growth to $5.58 billion, and earnings per share of $3.69. There already have been plenty of debates on how Green Mountain's expiring patents might change things. I didn't think it would be to this extent. Knowing how analysts can be somewhat quick to react with these high growth names, I wouldn't be surprised to see revenue numbers for the next year down to 25% and EPS numbers under $3.50 within a week or two. This isn't good news.
When I was again asked what to do with the stock in after hours, and if I would buy it, I said only if it dropped to $40 today. Yes, I said $40 today. As we approach 5pm, it is barely above $48.50. Starbucks on the other hand, is up more than 3.5%.
Now, as I am finishing the article, around 5:20 PM, Green Mountain has rallied back to $55. Why? Well, Starbucks is now holding a conference call. They are saying that their product will complement Green Mountain's. Basically, that this is a single serve espresso machine, not a coffee machine. If you believe that, by all means buy the stock. Apparently, in after hours, they are. But if Starbucks is able to launch a single serve espresso machine, why not launch a basic coffee one too. This is the start of something, so I wouldn't be quick to react right now. We need more information.
So what should you do with Green Mountain right now? I would just stay away for the moment. Green Mountain is going to get hit Friday, even if this is only a complementary product, and there is going to be plenty of negative press surrounding the name. Then the analysts will have their say. Let's wait a few days and see where we are then.