Quick, Buy Green Mountain at the Open!

by Jeff Reeves | May 3, 2012 8:45 am

Quick, Buy Green Mountain at the Open!

Green Mountain 185 Quick, Buy Green Mountain at the Open![1]Green Mountain Coffee Roasters (NASDAQ:GMCR[2]) was brutalized after earnings[3] 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[4] and Starbucks (NASDAQ:SBUX[5]) is going to eat Green Mountain’s lunch with its own single-serve brewing machine called Verismo[6].

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[7] 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.”[8] 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.

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2011/08/Green-Mountain-185.jpg
  2. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  3. brutalized after earnings: http://investorplace.com/2012/05/economys-tale-wags-the-dows-dog-wednesdays-ip-market-recap-adp-cmcsa-cbs-cvs-twx-wal/
  4. K-Cups are coming off patent: http://investorplace.com/2011/12/green-mountain-coffee-roasters-gmcr-keurig-sbux/
  5. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  6. its own single-serve brewing machine called Verismo: http://investorplace.com/2012/03/starbucks-single-serve-coffee-may-kill-green-mountain-sbux-gmcr-keurig-verismo/
  7. Piper Jaffray: http://www.benzinga.com/analyst-ratings/analyst-color/12/05/2554169/update-piper-jaffray-downgrades-gmcr-lowers-pt?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+benzinga%2Fpre-market-outlook+%28Channels+-+Pre-Market+Outlook%29
  8. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/Frugal-Investors-Finding-Stocks-ebook/dp/B007KB9CSI/ref=sr_1_1?ie=UTF8&qid=1331819172&sr=8-1

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