Don't let the Headlines Roast this Coffee Stock
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A few weeks ago, shares of the single serve coffee giant Green Mountain Coffee Roasters (NASDAQ: GMCR) suffered a tremendous 14 percent landslide practically overnight, and then another 14 percent since; both that they have yet to recover from. Now if that were the first sentence that an unknowing, potential GMCR investor were to come across in researching the company's stock, they would have to deduce that this company either reported substantially lower numbers than expected, was engaged in mischievous activity that caused severe repercussions, or something along those lines. Well the truth of the matter is, all this chaos appears to have stemmed off a few news articles; the reaction was downright erratic in my opinion.
In a press conference on March 8, Starbucks (NASDAQ: SBUX) announced, in vague detail, the release of their own single serve coffee machine, which would be named the “Verisimo.” Now, at face value this immediately appeared to be a haymaker targeted at partner GMCR and the market of single serve coffee that they have monopolized over the years. Although SBUX stated during the release that this would not affect their partnership with GMCR, how could it be construed any other way?
Apparently to GMCR investors, it couldn’t be. The stock stumbled hard in after-hours trading and snowballed into the next day, resulting in the aforementioned loss of 14 percent share value. At this point investors seemed to be relentlessly dumping shares of Green Mountain at a caffeine-infused rate, fueled solely off media speculation.
Of course, the deterioration of a mid cap company isn’t going to commence without a few ironic twists in the plot. Starbucks would come back later to announce the extension of their relationship with GMCR, informing the jittery investors that they would in fact be collaborating with GMCR in making SBUX packets for the latest and greatest Green Mountain coffee roaster, “The Vue.” To what should’ve been no surprise, this drove GMCR shares back up 7 percent.
But wait! The media pendulum is still swinging almost a month later; Green Mountain Chairman and Founder Robert Stiller has now recently been accused of insider trading, with a large omission of facts by the media, of course. Should not the man who built this $8 billion (by market cap) company from the ground up over the span of 30 years, all while revolutionizing the way Americans make their cup of Joe in the morning, be entitled to a profitable stock transaction?
I am no more enlightened than the next guy to the insider basis of his recent stock sales, but a piece of information worth sharing is that the average share price of his large volume sales over the past year happens to align quite nicely with the median share price of GMCR’s 52 week moving average -- $75.07 and $73.50, respectively. Now, I would think that someone willing to tango with the consequences of insider trading would be aiming for more advantageous margins than those.
At the same rate that the puns have been rolling in lately, Green Mountain has been getting roasted by the glaring heatlamp of scrutiny powered by the media, but unfortunately that light does not possess the X-ray capabilities needed to examine the actual health of this company. Green Mountain Coffee Roasters has continuously proven themselves over the years and yes, attempts to ravage their single serve arena of the $19 billion US coffee industry will be inevitable as patents expire, but that’s the name of the game. To think this largely successful company, built on innovation, hasn’t been brewing up some sort of solution to the thieves of their coffee fund would be utterly naïve and foolish. The only strategy GMCR needs to employ at this point is one that involves inserting a few positive spins into the media, as the headlines seem to be the determinant of their stock price lately.
Motley Fool newsletter services recommend Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Patrock19 is long GMCR.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.