Green Mountain's (GMCR)
Specialized Niche Has Meant Heady Gains
for Investors
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By: Paul Goodwin
Editor
Cabot China & Emerging
Markets Report
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Published:
September 5, 2007
The stock I’d like to investigate is a
coffee company that’s been growing
in the shadow of Starbucks (Nasdaq:
SBUX) for years. Starbucks began in
1971 with one store in Seattle and
is now a $20 billion company.
Green Mountain Coffee Roasters (Nasdaq:
GMCR, $33.57)
began in 1981 in a small cafe in
Waitsfield, Vermont.
Starbucks soon moved on from its
initial exclusive focus on roasting
and selling coffee beans, expanding
to 13,000 retail stores worldwide.
Green Mountain Coffee Roasters is
holding to its focus on selling just
the makings and letting someone else
brew and serve the coffee. But Green
Mountain has some interesting
wrinkles that make it a good
candidate for your investment
dollars.
First, Green Mountain is a younger,
smaller company. With a market cap
of just $800 million and a long way
to go in its expansion from a
primarily Northeast U.S. company,
GMCR has lots of space to grow
revenues from organic expansion. The
stock also has just 47 institutional
owners, as opposed to the 343 that
already own Starbucks. Increasing
participation by the whales of the
investment world will have a big
effect.
Second, Green Mountain has moved
aggressively into the single-cup
brewing segment. Green Mountain
bought Keurig, the company that
invented the K-Cup and K-Cup brewing
machine that prepares fresh coffee
one cup at a time in workplaces
everywhere. With dozens of coffee
varieties (caffeinated and
de-caffeinated, straight and
flavored, fair trade and organic,
plus tea and cocoa) and a virtual
lock on repeat business once the
brewing machine has been purchased,
this is a great innovation.
Third, the company is selling
increasing amounts of other
merchandise, from mugs and brewing
equipment to food and gift packs.
The Vermont connection is important
here, as associations with maple
syrup, fall foliage, and Yankee
character has created a deep
reservoir of positive feeling that
translates into goodwill from
customers.
All of these interesting wrinkles
wouldn’t mean much if the product
didn’t keep customers coming back
for more. Green Mountain’s
distribution savvy has made it
possible for supermarkets, food
stores, and retail outlets to serve
high-quality freshly roasted Arabica
bean coffee. Customers like it, and
that makes retailers happy.
GMCR spent much of the last four
years of the 1990s trading below $2,
with lots of time as a penny stock.
But just as the Tech Bubble was
bursting, GMCR went on a rampage,
soaring as high as
$14 in 2001. A year-long correction
dropped the stock back to $5,
followed by a slow, workmanlike
climb back to the mid-teens, where
it built a base under resistance at
$15 for about a year. When the
breakout came in November 2006, GMCR
had a good head of steam up, and
that move is still going on with the
stock now at roughly $34.
It’s bullish that the stock has held
up well (and tightened up
beautifully) in recent weeks,
despite the crazy market.
To me, this looks like a good play
on the world’s need for caffeine.
Paul Goodwin
Editor
Cabot China & Emerging Markets Report
About Paul Goodwin
[includes/bios/goodwin.htm]
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