Coffee Break

What’s up at Green Mountain Coffee Roasters? GMCR is what. GMCR, the coffee company’s stock tag, is soaring in the middle of a rough market. While many other company’s are languishing, meeting or barely meeting expectations, Green Mountain Coffee stock has exceeded expectations the last two quarters, with stock prices going up and up and up.

In fact, Green Mountain, maker of Keurig Single Serve Coffee machines and of K-cups coffee for the Keurig machine, is doing so well that some stock analysts have downgraded their rating from a BUY NOW to Neutral. Why? This one isn’t about “fundamentals” - the strength of the underlying company and its prospects - but about the way the market works. As Scott Cendrowski, writer for Fortune’s Investors Daily, points out, many analysits are looking for a “pull back” on the stock price.

In other words, because the company’s share price has jumped four times since last November, they’re cautioning investors to hang on before investing more money because history shows that investors do tend to pull back at this point. It’s a matter of growth that’s too good to be true - but is it?

The answer is — maybe. And maybe not. Green Mountain has done an excellent job of distributing its eggs - or its coffee beans - amoung multiple baskets. Single serve coffee brewers are the segment of the company that most analyst’s notice and comment - but they’re only a segment of the business. Granted, it’s a part of the business that generates sales for a second segment of the company - K-cups. The more brewers out there, the more K-cups will be sold. Right now, sales of office single serve coffee brewers are soft, thanks to the sliding economy - but home sales are up. Unfortunately, home customers don’t order quite as much coffee as the office accounts.

However, Green Mountain has made a couple of very big business decisions lately. One that will make a huge difference in their business and their profitability is their decision to distribute their Keurig coffee brewers through various retail outlets. Making it easier to buy a Keurig will definitely increase the sales of Keurig brewers, which will lead to increased sales of K-cups.

They’ve also made deals with McDonald’s, who now sell Green Mountain coffees as the coffee of choice, and with other outlets who’ll sell brewed Green Mountain coffee to their customers. The company continues to make deals with name brand coffees, teas and chocolate beverage companies to license their sales in K-cups. That gives Green Mountain a huge jump on any other companies that might enter the market when GMCR’s patents expire over the next ten years. Will people continue to buy Green Mountain K-cups when they can buy, say, Folgers in K-cups for half the price? I know my answer - what about you? Will price trump flavor?

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