Originally posted May, 2009.
The absolute worst part about it? I used its products several time a day…
In 2006 I started looking at a company called Green Mountain Coffee (GMCR). Then it traded at $12 and change (split adjusted) and was earning $.39 a share annually. I liked the coffee but it traded at a PE of 30 times earnings and despite growing revenues 40% in 2005 over 2006, a rise in expenses caused earnings to dip in 2006 over 2005. So, I decided to stay away but check in on it occasionally.
2007 rolled around and even though earnings jumped over 40% the share prices ran ahead of that and its PE that year ballooned to over 50 times earnings. Not exactly a value.
2008 came and the stock just kind of slowly drifted a bit higher while earnings jumped another 67% but, the PE still sat at 50 times earnings. Still no value.
So, why am I sick about it? It was at this point, mid 2008, I stopped watching it. Then came October 2008 and the market sell-off that took shares down to $24 each which when one considers the $1.90 they should earn this year means shares traded at 12 times earnings growing >50% a year. At this point, shares were a great value (there is of course more to the analysis of the company but I am trying to make a general point here).
Now, that is not the worst part…
You see, back in Feb. 2007 I actually wrote how McDonald’s (MCD) was going to win the coffee wars over Starbucks (SBUX) because they were using, at least in the Northeast the “Newman’s Own Organic” coffee made in conjunction with GMCR (the deal was recently extended). I apparently neglected the effect this would have on GMCR sales while focusing on McDonald’s and by extension their effect on Starbucks.
Later that year we were at a friends house and they had a “Keurig K-cup” coffee maker (the company was purchased by GMCR). My wife I used it and thought (and still do) that it was the greatest things ever made. It was so great that anyone who came to our home after inquiring as to what it was and receiving a demo from us, instantly loved it and wanted one.
We have given out no less that 5 of them as gifts with the explanation of the “great deals” GMCR gives on the coffee “that is wicked good”. Many of them in turn, have either given one as a gift OR had friends who, after seeing theirs, then got one of their own. I am doubting seriously the chance my experience is that unique to other people and that theyr are not seeing the same thing happen. BUT, I neglected to turn this into an investing idea because “GMCR was an expensive stock vs earnings”. It was, but not in October 2008 when after it just recently left my radar..
Then, in April this year GMCR signed a deal to sell the makers and coffee in thousands of Wal-Mart’s (WMT) across the US.
Today’s share price?????? $79….For those wondering why I did not buy on the Wal-Mart news, it was too late. The deal was announced after hours and the stock jumped from the $50’s to the $70’s almost instantly.
Yea….that would have been a cool 229% in 6 months in perhaps the most dreadful market in our lifetime…and it was in my cup right in front of me every single day…
Lesson? If you have a good company with a great product whose stock may be a bit expensive…..DO NOT EVER LET IT FALL OFF YOUR RADAR.……
UPDATE:
In June 2009 the stock split 3 for 2 and now sits at $89. No, I’m not going to figure out what I could have made…..no need to cry today..
In December 2009 they began to acquire Diedrich coffee