Green Mountain Drops Into Value Range

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Green mountain coffee roasters starbucksGreen 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.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2012/05/green-mountain-drops-into-value-range-gmcr/.

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