Why Green Mountain Coffee Roasters Will Soar This Week

Terry Allen profile picture
Terry Allen

Three months ago, Green Mountain Coffee Roasters (NASDAQ:GMCR) earned 64 cents a share, handily beating the Street's estimate of 48 cents a share. The stock gained 27% the next day. But about one year ago today, the company missed expectations, and the stock fell a whopping 30% on the following day.

The company reports earnings after the close on Wednesday, February 6th. Which of the above two scenarios is likely to repeat? The market is preparing for the fireworks. Implied volatility of the weekly options, which expire two days after the announcement, has soared to 164, about five times what it is in "normal" times. The options are predicting about an $8 price change on a $46 stock.

This is a truly exciting time for people who follow GMCR. Three months ago, I wrote a Seeking Alpha article in advance of the earnings announcement -- "A Dynamite Options Strategy To Play The Green Mountain Coffee Roasters Earnings Announcement" -- in which I warned about a possible short squeeze on the 50 million shares sold short (about 34% of the total outstanding shares). I got a chuckle out of the comments made -- either people loved or hated the company. No one seemed to have a lukewarm or neutral feeling. Most seemed to hate it.

A well-researched recent Seeking Alpha article described the meteoric history of GMCR in wonderful detail -- "Green Mountain Coffee Roasters 3.0". This article should be required reading for anyone interested in taking a position in this company (short or long). While it does a great job of chronicling the basic business of the company (and its future potential), it doesn't take a close look at the current stock price and conclude whether it is fairly valued according to his analysis.

Is GMCR Fairly Valued?

While there

This article was written by

Terry Allen profile picture
Publisher of options newsletter TerrysTips.com since 2001.. Thirty years experience trading options virtually every day. including stint as seat holder and market maker on the C.B.O.E. MBA from Harvard Business School and DBA from Univ. of Virginia Darden School. Author of Making 36%: Duffer's Guide to Breaking Par in the Market Every Year, In Good Years and Bad (4th revision - 2012) and Coffee Can Investing: A Better Idea Than Mutual Funds in an IRA or 401(K), 2014. TerrysTips.com is a newsletter that carries out eight different option portfolios which many subscribers mirror on their own or through auto-trade at several brokers who make all the same trades in individual customer accounts. Each portfolio offers something different (bullish, neutral, or bearish),and different underlyings (GOOG, SPY, SVXY, and other individual companies). In 2005, the S.E.C. brought an action against Dr. Terry Allen, claiming that he was managing money for people without being a registered investment advisor because of the auto-trade service offered by several brokers who placed trades in their customer accounts based on Terry’s Tips newsletter recommendations. A second complaint was for a single statement on his website that they believed was incorrect and therefore fraudulent. Although two large law firms assured Dr. Allen that if he went to court on the first issue, he would win because there was a Supreme Court decision stating that investment newsletters are exempt from registration requirements - it would be a violation of their First Amendment rights. However, they estimated that his legal expenses would be greater than settling with the S.E.C. (and a year or two of his time tied up in court proceedings), and both firms recommended that he accept the settlement offer while not admitting any guilt. The second issue (fraud) involved a single statement that was true when it was written but a couple of years later, option prices fell to 10-year lows, and it was no longer true. The S.E.C. argued that the statement was not removed from the website in a timely enough fashion. For the past eight years since the settlement with the S.E.C., Dr. Allen has have been publishing the Terry’s Tips newsletter (and recommendations are executed in customer accounts at thinkorswim by TD Ameritrade through their Auto-Trade program), and the S.E.C. has not objected to any of his activities.

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