Seeking Alpha

tradingblock.com's  Instablog

tradingblock.com
Send Message
TradingBlock provides investors regular market commentary and outlooks from market analysts and educators like Stutland Volatility Group, Dan Sheridan of Sheridan Mentoring, and TradingBlock's own market strategist Tim Biggam. Market analyst outlooks for individual stocks are entered into our... More
My company:
TradingBlock
My blog:
TradingBlock Market Commentary
  • After Recent 65% Drop In Stock Price, Green Mountain Now A Value Play 0 comments
    May 8, 2012 4:24 PM | about stocks: GMCR

    Tim Biggam, TradingBlock (May 8, 2012, 3:20 pm CDT)

    SymbolAnalyst Target PriceTarget Date
    GMCR30.00Sept. 21, 2012

    Green Mountain Coffee Roasters, Inc. (ticker: GMCR) engages in the specialty coffee and coffee maker business. The company sources, produces, and sells approximately 200 varieties of coffee, cocoa, teas, and other beverages. The company also manufactures gourmet single-cup brewing systems and brewing equipment. It sells its products primarily in North America through supermarkets, club stores, and convenience stores; in restaurants and hospitality; and to office coffee distributors, as well as directly to consumers through its website.

    How the mighty have fallen. GMCR, which we felt was a little too richly priced at the 75 level a few months back, has now fallen back 65% to 26.38. Their latest earnings announcement, which was focused on slowing growth going forward, was met with a punishing reaction by the market. What was missed, in my opinion, was the fact that GMCR actually made their numbers. The company tooled down growth prospects going forward from 50% to a more realistic 20%.

    The stock, which had, been trading at over a 50 multiple, now sports a very reasonable 12 P/E, and only 10 on a forward basis. Some of the mauling was also due to forced liquidation by one of the CEOs, who had to sell 5 million shares to meet a margin call. With the news out of the way, I think the market will eventually focus on the fact that GMCR is now a GARP play, trading at a 10 P/E with a 20% growth rate.

    I look for shares to move back to the post-earnings level of 30 by September expiration.

    Play of the Day

    Based on Green Mountain's (ticker: GMCR) current market price of $26.38 and using a target price of $30.00, a target date of September 21, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

    Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.

    Strategy (click for details)% Return at TargetProbability of breaking
    even or better
    Buy Sep Put Butterfly+210%56%
    Buy Sep Call Spread+112%61%
    Sell Sep Put Spread+103%63%
    Buy Stock+13%61%

    * Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions. Click here to view risks regarding selling stock short.

    DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services. He currently does not hold any positions in GMCR.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To tradingblock.com's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.