Time To Smell The Coffee- GMCR

Today with the market down 200 Green Mtn complete with high PE and all was down 50 cents on absolutely puke volume. That told me something- this heavily shorted stock is attracting limited new sellers and thus we have ourselves an explosive set up.

Green Mtn. follows a theme that has been working for us in a small way- buying stocks that reported strong numbers. It sounds simple but it isn't, you must remember the stk after many dramatic market sell offs and you have to be positioned in the right area.

I always look for an X-mas winner even in the worst of economies and I have decided that these single serving brewers are going to be given a whole lot this X-Mas. That results in a whole lot of follow on orders for the single brew coffee! That's Gren Mtn's specialty.

Short sellers have rushed to bet against GMCR's long-term uptrend. Short interest represents a whopping 52.4% of the stock's available float!!!! So if we have some announcement of x-mas sales and Whamo! It would take 27 days to repurchase at the equity's average daily volume. Just about as many days as until Christmas... it's a near perfect play! As the shares hopefully catch a lift from trendline support now, these skeptics could be forced to cover their losing positions, thereby helping to launch GMCR on the next leg of its journey higher. And I am confident that journey is going to come. This is a powerhouse new company that I have admired from afar.

The Keurig B3000 brewer won a Silver Excellence in Design from DESIGN magazine on July 21st. The single serving brewer that has replaced coffee pots in large offices has a unique look, is easy to use, and brews a cup of coffee in less than one minute. The Office Coffee Services channel accounts for 30% of the company's shipments by the pound.

Green Mountain has a projected growth rate of 20.0% over the next five years, easily above the industry average of 13.5%. The company also boasts a Net Profit Margin of 4.1%, about three times higher than the industry average.

Whereas starbux is hurting the single serving of coffee is all the rage. I tried some about a year ago and the taste was great. In August the Co launched
a new compact 12-count K-Cup package designed to expand their supermarket footprint with ten varieties of coffee. GMCR now has 2,600 supermarket locations selling K-Cup portion packs… K-Cups now have a 33% share of single cup coffee sold in grocery stores… Particularly impressive when you realize that they are only selling their coffee today in about 10% of this nationwide market.
From The Conference Call-

In Q4 we started to see some belt tightening out there in the marketplace and this belt tightening continues… [But] we think that we’ll be able to grow our business going forward during the fiscal year 09.

We’re seeing the migration from bulk coffee to packaged coffee and we’re still seeing a very strong package coffee business really across the whole base. A lot of the consumers that may have purchased Folgers and Maxwell House in the past are maybe moving up into premium specialty coffee. It is a high switch category.

Coffee price:

Coffee is the single largest expense we have comprising about 20% of our cost of sales.

Over the past four years, we’ve seen the price of commodity coffee almost double. While we don’t purchase this grade of coffee, it does translate to higher coffee costs for us… We anticipate that for fiscal 2009, our coffee cost will be similar to fiscal 2008.

Q: Is that just timing of hedges where the first half of the year [prices] will be a lot higher than they were first half of last year and then second half a lot lower?

A: Correct. In fiscal 2008, we had lower coffee costs in quarter one and two and then we saw a tremendous increase in back half of the year and then with forward buy that we’ve done, we didn’t buy at the highest point, so we leveled off some of those peaks, but we will see higher costs in Q1 and Q2 and see it come down in the back half of the year.

Right now we see the coffee market coming down and if that stays low like that, we’ll see some opportunities later in the year.

Outlook:

The trends that we reported for the calendar quarter, those trends are continuing into the months of October and November, beyond the quarter we’re reporting to you.

So like a company that poorly hedged oil you do have a bit of that going on here but the company has proven they can make good money at the coffee price they are locked into and come second half of next year if we can hang on that long, earnings will REALLY ramp when they re lock in price fixes....

This is a nice retail play without being too retail. Even if stores discount the item the wholesale price remains the same- to GMCR it's just more units.
Time To Smell The Coffee folks! @ $ 35.50 ~ stoney