Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is one of those stocks that ended in tears for many traders after a screaming run that came crashing to a halt. After topping out at around $110 a share in late 2011, it crashed to under $20 about a year later.
But since those 2012 lows, GMCR has been on a tear like a 12-year-old who just sucked down her first espresso. The stock is up 170% in the last year and 72% so far in 2013, including around 18% gains today alone.
Surprised? Don’t be. Because it has been a perfect combination of squeezing out the shorts and posting great earnings that has brought this stock back from its depressed levels.
Nearly 40% of Green Mountain stock’s float — that’s available shares that actually trade on the market on a given day when you back out restricted shares — was held short into earnings.
But the news lately hasn’t favored the bears at all.
For starters, Starbucks (NASDAQ:SBUX) extended its K-Cup pact with Green Mountain for use in its Keurig single-cup brewer. That’s a big deal, considering that SBUX has a single-cup brewer of its own, the Verismo, and has made a significant push to get the thing adopted. If the 900-pound gorilla of coffee has to stay partners with GMCR, that says something.
Most importantly, Green Mountain Coffee stock has been buoyed by extraordinary earnings. On Wednesday, the stock boasted earnings of 93 cents a share on revenues of $1 billion — hitting its revenue target but blowing away forecasts of just 72 cents.
Furthermore, the company reported sales of just $885 million a year ago and earnings of 59 cents, showing that Green Mountain Stock hasn’t just run up on sentiment but on significant growth.
This strong earnings report resulted in upgrades from analysts, too, including Canaccord Genuity that upped Green Mountain stock to a “buy” with a target of $73 from its previous mark of $65. It was also raised to “buy” from “neutral” at Dougherty.
You may wonder how Green Mountain stock can be so hot even as the Keurig seems like an old fad and competition continues to heat up — not just from Starbucks but from other brands like Nestle (PINK:NSRGY) and its Nespresso machine or Tassimo, which is a subsidiary of Kraft (NASDAQ:KRFT).
But Green Mountain still gets a cut of the K-Cups that go into its machines. And according to recent reports, the coffee cartridges continue to fly off the shelves. Even if the machines have already been bought, there’s a reliable and even growing revenue stream to be had by supplying the coffee, tea, hot chocolate and such so consumers and businesses can actually use them every morning.
Consider that single-serve cup sales hit $794 million in the second quarter — about 80% of total revenue.
This points to a Green Mountain that has not just navigated the end of its high-margin hardware momentum but has a strong foundation for the future. There’s a chance that someone may disrupt the Keurig, of course, but nobody has done it yet and the single-serve brewer is ubiquitous.
That will at worst result in stability and may even result in continued growth.
There’s a chance of a pullback as the shorts take their lumps and GMCR stock stabilizes, but long-term Green Mountain is here to stay.
- Raising its K-Cup forecast boosts GMCR. (Bloomberg)
- Zacks Investment Research had a timely upgrade on Green Mountain before earnings. (Zacks.com)
- Elsewhere in coffee, Brian Stoffel says SBUX may be worth a look. (The Motley Fool)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.