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Green Mountain Coffee Roasters Inc. (GMCR), Starbucks Corporation (SBUX): This Specialty Coffee Company Is a Winner, but Risks Exist

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Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is a unique story. Despite revenue and earnings growth, a strong balance sheet, and an effective strategy, the short position is north of 37%. Therefore a lot of investors/traders believe a gap down is on the horizon.

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)

Misconception
The shorts are all over Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) for two reasons. One is that if a licensing deal is terminated with, let’s say, a Starbucks Corporation (NASDAQ:SBUX) or Dunkin Brands Group Inc (NASDAQ:DNKN)‘s Dunkin’ Donuts, it could bring significant pain for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s business. Though not ideal, it wouldn’t be as big of a problem as people think. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has licensing agreements with over 20 big-name companies, and this list is expected to grow. Currently, these names include the aforementioned Starbucks Corporation (NASDAQ:SBUX) and Dunkin’ Donuts, Caribou Coffee, Snapple, Swiss Miss, and Wolfgang Puck.

This diversification should lead to downside protection. While this is true in the real world, it’s not necessarily the case for the stock, since perception trumps fundamentals in the short to medium term. The shorts might have the potential to make some money in the short term. However, betting against a growing company with strong fundamentals isn’t recommended. There are much better short options out there.

Investor safety
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s valuation is also luring in short-sellers. Green Mountain trades at 29 times earnings. This might be a steep price, but Starbucks Corporation (NASDAQ:SBUX) and Dunkin Brands Group Inc (NASDAQ:DNKN) trade at 34 times earnings and 36 times earnings, respectively.

If you’re looking for a better investment option than Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), then you can argue that Starbucks Corporation (NASDAQ:SBUX), with a market cap of $53.68 billion, is a much safer play than Green Mountain, with a market cap of $12.74 billion. Its larger size makes Starbucks Corporation (NASDAQ:SBUX) more resilient to broader market corrections because it’s a bigger ship to turn. Starbucks Corporation (NASDAQ:SBUX) also yields 1.20%, which helps ease any potential pain. Green Mountain doesn’t offer a yield.

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