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Green Mountain Drops Into Value Range

Consider these option plays now that GMCR is back in reality


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.

For the full details on this trade, visit, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to the details about these GMCR options trading strategies by visiting TradeBuilder here.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities.

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