Green Mountain Coffee Roasters (NASDAQ:GMCR) was brutalized after earnings Wednesday and is set to open off 40% or more today. That’s a buying opportunity for swing traders. GMCR is profitable, at no risk of bankruptcy and could be a nice trade on a dead-cat bounce once the dust settles.
For fiscal 2012 ending in September, Green Mountain expects adjusted earnings per share will range from $2.40 to $2.50. That’s significantly lower than previous forecasts of almost $2.70. But if you do a quick earnings multiple, $28.80 gets you in at a P/E of 12 on the low range.
GMCR is set to open under $30, so I’d set a limit order at $28.80 and see what happens.
To be clear, protect your entry price. This is not a wise long-term investment, since earnings momentum clearly is decaying now that the Keurig has reached critical mass, K-Cups are coming off patent and Starbucks (NASDAQ:SBUX) is going to eat Green Mountain’s lunch with its own single-serve brewing machine called Verismo.
But for cripes’ sake, GMCR is back to 2010 valuations after this slamming sell-off. That year, EPS totaled a mere 58 cents per share! With more than four times that forecast this year, does Green Mountain really deserve a 40%, 50% or 60% decline?
Clearly the bad earnings need to be priced in. But as Warren Buffett says, be greedy when others are fearful and fearful when others are greedy.
You could see a nice short-term bounce in Green Mountain after all the shock and awe from this earnings report fades away.
On the other hand, all it would take is a few bad market days to add to the pain and you could watch GMCR slip even lower … but I think it’s a risk worth taking.
Consider this: Piper Jaffray downgraded Green Mountain Coffee Roasters from Overweight to Neutral this morning — shocker! — but it lowered its price target from $65 to just $40. That’s 35% upside if you can get in around $28.80.
Of course, banking on the price targets of an advisory firm that far behind the curve is always a shaky proposition…
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the investments named here.