Green Mountain Coffee Roasters (NASDAQ: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 in K-Cup portion packs and coffee in traditional packaging, including whole bean and ground coffee selections in bags and ground coffee in fractional packs. 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% (as of this writing) to $26.38. The company’s 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 its 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 also was caused by 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 eventually will 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.
Based on GMCR’s closing market price of $26.38 for May 8, 2012, and using a target price of $30, and a target date of Sept. 21, 2012, option strategies to consider include buying a September put butterfly, buying a call spread or selling a put spread, or using another options strategy that best fits your trading style and risk-return objectives.
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As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities.