Keurig Green Mountain (GMCR) has been absolutely demolished by Wall Street this year; it’s the seventh-worst performer in the S&P 500 for all of 2015. That means only six of America’s top 500 stocks are underperforming GMCR in the stock market today.
As of Tuesday, GMCR stock was down nearly 60%. Compare that to losses of 8% for the S&P 500, and GMCR stock is underperforming its benchmark by more than 50 percentage points.
Can Keurig Kold, the company’s new home soda-brewing machine, help reverse course for the struggling consumer goods company?
I doubt it.
Even though GMCR stock trades at an attractive valuation, I think it’s currently a value trap, especially with this news on the horizon.
This Has Been Done Before
What a great idea! Who wouldn’t want to brew up their own sodas rather than pay outrageous prices at the restaurant or grocery store? It is a great idea … but Keurig was not the first to come up with it.
In fact, Sodastream (SODA) has been doing it for years. Their products were hot commodities for a while … until they weren’t. SODA grew sales from $212 million in 2010 to $562 million in 2013, only to see sales slip by 9% in 2014 as the company lost over $50 million.
Analysts expect revenue to crater another 16.8% in the 2015 fiscal year.
So, despite concrete evidence that the market does not want or need a home-brewing soda machine, GMCR is shoving it on shelves anyway.
It doesn’t surprise me in the least that GMCR is rolling out a product that people increasingly do not want. The company lost all credibility with its widely panned Keurig 2.0 machines, the history of which I summarized in a May article:
“The Keurig 2.0 was a botched attempt to protect Keurig’s market share: The machines are incompatible with coffee pods not officially licensed as K-Cups, but are also incompatible with old K-Cups made before last summer. That fact left some customers pretty peeved, as they went out and spent between $150 and $200 on a brewer only to come home and find that their old K-Cups were useless.”
The worst thing about this whole endeavor is that GMCR never learned its lesson from its customers’ sticker shock the first time around. It’s pricing the Keurig Kold at between $299 and $369. Sodastreams, on the other hand, go for between $79 and $199.
It almost looks as if someone forgot to do their market research.
I mentioned briefly that GMCR stock has an attractive valuation. And from a pure numbers perspective, it does: Shares trade at 15 times forward earnings, less than the forward multiple of the S&P 500 itself.
But don’t get caught up by seemingly attractive valuations alone. The company needs to know what it’s doing, and Keurig clearly doesn’t.
GMCR stock is a value trap, and if you buy into it, you’ll be left in the Kold.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.