Serving Up A Cup Of Value: Starbucks Corporation (SBUX), Green Mountain Coffee Roasters Inc. (GMCR)

I’m going to make a bold statement and say that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) might be the best value in its industry. For all those Starbucks Corporation (NASDAQ:SBUX) fans out there, the proof is in the numbers. The coffee industry is rife with competition, but this relatively small company has completely changed the way people think about brewing coffee at home. While the stock has been on a wild ride over the last year, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s business is improving. With a stock like this, I try to remember Peter Lynch’s advice that stocks move for lots of reasons in the short-term, but over the long-term it’s earnings that matter.

The Great Disruptor
If Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) was just a fad, or couldn’t effectively compete, why would Starbucks Corporation (NASDAQ:SBUX) and Dunkin Brands both choose to license their iconic brands in K-Cup formats? In addition, why would Starbucks Corporation (NASDAQ:SBUX) choose to create a machine (Verismo) to compete in the single serve market? I would actually argue that once these two giants decided to license with Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), they essentially told the market, “here is your single-serve leader.”

If you are talking about places you can go and get a hot or cold coffee, you would have to include everyone from Panera Bread Co (NASDAQ:PNRA), to McDonald’s Corporation (NYSE:MCD), to your local convenience store. However, with every quarter that passes, Green Mountain sells more Keurig and Vue machines. The more machines are sold, the greater the demand for K-Cups and Vue packs later. In theory, as customers use these at home coffee options, they might buy less away from home.

Just In Case You Don’t Believe Yet
In case you think that Green Mountain’s Keurig lineup is just a fad, consider that for the last three years the company has sold successively more brewers during the holiday season than the year before. In the current quarter, the company sold just short of five million machines. This increase in brewers represented a 14% increase in revenue from last year. The company’s single-serve pack business was also strong showing a revenue increase of 21%.

With five million new brewers in homes and businesses, it’s a good bet that the single-serve business will pick up in the coming months. Keep in mind these strong sales occurred after the much talked about K-Cup patent expiration in September of 2012. I think the thing that Wall Street forgets is, the average customer has no idea about this patent expiration. With a 27% increase in non-GAAP EPS, I think we can tell this expiration wasn’t the crushing blow to the company many people expected.