Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is not running out of steam. The company’s stock had rallied beginning May 8 to trade at a new 52-week high of $81.70 on May 20, but is now down to $73 per share (May 28 after-hours). However, the stock might resume its journey north once again.
The rally was triggered by the company’s announcement of an extended relationship with Starbucks Corporation (NASDAQ:SBUX) on K-Cup sales. This ended speculation over a possible fallout in their relationship following Starbucks Corporation (NASDAQ:SBUX)’ launch of its own single serve brewer of espresso drinks. Following the signing of the new five-year deal, Starbucks will now add Seattle’s Best and Torrefazione Italia coffees, Teavana teas, and Starbucks Corporation (NASDAQ:SBUX) cocoa to the K-Cup line up.
There are quite a number of factors attributable to the stock’s current slump. The company’s K-Cup sales declined 35% in April and dipped further by 21% in May. There are different theories out there with regard to the consecutive declines. Some think it has something to do with weather, whereas others believe that the industry overall is experiencing a slowdown.
Analysts from Wells Fargo and SunTrust believe that this is something to do with untimely promotions, coupled with a bit of what the rest have suggested. All these factors can only be temporary, the more reason we should look at something else in determining Green Mountain’s long-term destination. Analysts have also reiterated their Buy rating on the stock despite its recent plunge.
Green Mountain is financially stable and has a strong outlook
With a debt-to-equity ratio of 0.15,Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has a very stable financial position. However, its quick ratio of 1.18 is just enough to manage the company’s short-term obligations. Nonetheless, the company is financially sound, and faces no risk in meeting any of its debt obligations. The other factor to look at is its profitability margins, which are quite impressive. A gross margin of 46.8% is very good for a processed foods company. The company also boasts a strong profit margin of 13.17%, which is well above the industry average.
Results from the most recent quarter were very impressive with the company’s profits rising 42.3% to $132.4 million compared to last year’s $93.03 million. Analysts expect Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) to better last year’s EPS of $2.28 by $0.88. This would translate to about $3.16 in earnings per share for the current fiscal year. However, the revenue growth rate is not the best in the industry as it stands at a paltry 13.5% compared to the industry average of 35.1%.
Valuation
GMCR PE Ratio TTM data by YCharts
