GMCR Drops 30%

Earnings and Revenue Lower than Expected

GMCR released a statement confirming that it missed earnings and revenue expectations this quarter.  More specifically, GMCR missed the forecasted EPS by 1 penny.  In addition, they reported a revenue stream of $712 million instead of the expected $761 million.  Despite the fact that these missed expectations are most likely due to normal fluctuations in demand inherent to the coffee industry, investors turned sour and sent shares tumbling 30% in after-hours market trading.  For more information click here.

GMCR Addresses Einhorn's Criticism

Another big story coming out of GMCR today was that it addressed criticism from David Einhorn.  The CEO of GMCR, Larry Blanford, said that the company hired an audit committee that found no misconduct or wrong doing with GMCR.  He also added:

“We understand with success comes scrutiny, and at times skepticism.”

Unfortunately, these positive comments did not prevent the drastic after hours share price decline.

What to do Now

As an owner of GMCR shares, I have held onto my position all the way through this crisis.  My investing strategy is to stick with a company unless my investment thesis for it has changed.  As I see it now, GMCR still has a strong product that will continue to produce high revenues and earnings in the future.  Investors must understand that GMCR's missing earnings and revenue expectations are simply a byproduct of the company's wild success.  If it hadn't been performing so well in the beginning, expectations wouldn't have been so high!

Having said that, I do not believe that RIGHT NOW is the best time to invest in GMCR.  With so much skepticism surrounding the stock amidst the Einhorn allegations, it is best to let the stock settle a bit before investing.  If you REALLY want to invest in GMCR, I would recommend pursuing a dollar cost average strategy where you invest a third of your intended investment now, another third a month from now, and a final third three months from now.  This way you will protect yourself and possibly benefit from possible price fluctuations.

Michael R Caligiuri owns shares in GMCR

Green Mountain Coffee Roasters Oversold

There are two possible reasons that GMCR shares have fallen 40% since David Einhorn's recommendation to short the stock:

1. Einhorn's analysis of GMCR was indeed correct and GMCR shares were grossly overrvalued

2. Investors simply sold off their shares in GMCR out of fear. Fear the almighty Einhorn!

I'm not buying Einhorn's recommendation and thus believe that investors sold their shares in GMCR out of fear.  Although I admire David Einhorn and his brilliant analyses of companies, I think it was his stellar reputation that was responsible for GMCR's fall rather than the rationale provided in his analysis, which can be found at this link: http://tinyurl.com/6zoztck.  Sure, Einhorn has had many successful short-sell recommendations such as Lehman Brothers, but all investors make mistakes.

Einhorn's two biggest reasons for shorting GMCR were unethical accounting practices and a likely loss of market share due to patent expiration.  I guess I can't really argue with Einhorn on either one of these points, but that's only because we have known both of these things for a while now.  Every stock analyst on the market and their mother knew exactly when GMCR patents were going to expire (this was explicitly stated in the 10K).  Furthermore, GMCR accounting practices had already been in question before.  If stock analysts and investors believed in GMCR prior to David Einhorn reciting information that they already knew, then why did so many people sell their shares? Fear.

The bottom line is that GMCR has a very strong product that has plenty of room to grow.  Although there will be new entrants to the K-cup industry, GMCR's first mover advantage and long term contracts with powerhouse coffee companies such as Starbucks and Dunkin Donuts should help it maintain its competitive advantage.

Michael R Caligiuri owns shares of GMCR

Quantitative vs. Qualitative Investing

Quantitative vs. Qualitative Investing

When an investor is deciding whether or not to purchase stock in a company, he or she should perform a qualitative and quantitative analysis.

Qualitative Analysis

A qualitative analysis is basically the non-numbers analysis.  This consists of an evaluation of a company’s brand, mass marketability, competitive advantage, leadership, growth potential, etc.

Qualitative investors care more about the long-term growth potential of a company rather than short-term price fluctuations.  Companies that are currently attractive to qualitative investors, but not to quantitative investors would include Google, Chipotle, Amazon, and Netflix.  When Google, Chipotle, and Amazon had their initial public offerings (IPO’s), quantitative investors claimed that the companies were overvalued.  In contrast, qualitative investors claimed that the future for these companies what limitless.  In a way, both investors were correct.

The qualitative investors were correct because Google, Chipotle, and Amazon ended up being incredibly successful.  An investment in these companies at the time of their IPO’s would now be worth a fortune [this is not true for Google...it's worth 2-3 times its IPO, not "a fortune".  I would say: An large investment in Chipotle and Amazon at the time of their IPO’s would now be worth a fortune, while such an investment in Google would have more than doubled. 

In the quantitative section below, I will explain why the quantitative investors were also correct.

Quantitative

A quantitative analysis is an analysis "by the numbers".  This entails pouring through a company’s financial statements to create a fair trade value.  In other words, quantitative investors look at the current financials of a company to place a price tag on it, and ask if the stock price is significantly above that price tag.  Ratios that quantitative investors put a great emphasis on include the price to earnings ratio, price to book ratio, and PEG ratio (PE ratio divided by the growth rate).

So why wouldn’t a quantitative investor have invested in Google, Chipotle, or Amazon’s IPO?  The answer is that all of these companies appeared grossly overvalued at the time of their IPO.  All of the ratios mentioned above that are important to quantitative investors were astronomically large at the time of their IPO.  For example, when Amazon had its IPO in 1997, the company’s market value was $438 million.  However, the company appeared overvalued because it had not yet even made a profit.  So, if Amazon even earned $1 million, the P/E ratio would have been astronomically high at 438.  Quantitative investors would have a heart attack at the sight of a P/E ratio that high, and probably would have shorted the stock, figuring it was doomed to fail.

The quantitative investor would have been correct in not buying Amazon, because it was not necessarily a good short term investment.  Like many great success stories, there were times when Amazon’s share price was plummeting and short term investors sold their Amazon stock and unfortunately never reaped the subsequent astronomical returns.  Amazon is now worth over $84 billion dollars representing a return on investment of 191,680% from its IPO.  Pretty good!

LinkedIn, Vera Bradley, MAKO Surgical, Green Mountain Coffee Roasters

All of these recommendations are qualitative investments.  It is to be expected that price fluctuations will be great.  We have already seen investments such as MAKO Surgical and Green Mountain increase tremendously in value, however, we have also seen investments like Vera Bradley and LinkedIn decrease in value.  The trick is to "weather the storm" and hold on for the long term if you believe, as I do, that these companies have great products and great leadership that will ultimately dominate their respective markets.  You don’t want to be like the quantitative investor who sold his/her stock in Amazon because the price went down in the short term.  You want to be the qualitative investor who held onto his/her investment and through thick and thin, only to finish financially far, far ahead of the crowd.

Green Mountain Coffee Roasters (GMCR) up 21% After the Bell

Congrats to all those who invested!

If you plan to hold GMCR for the long run, I recommend to hold your shares.  If you have not yet invested in GMCR, wait for things to settle down before you invest.  It is common place for a stock to drop the day after a big share price jump.

Here is an article about the 21% share price increase after the bell:

http://tinyurl.com/3z7lp79

Michael R Caligiuri owns shares of GMCR

Green Mountain Coffee Roasters (GMCR) up 30%. Buy More

Previous Recommendation:


Caligiuri Investments recommended GMCR three months ago on December 10th, 2010.  Since then, the share price has increased from $33.81 to $59.99; this is an increase of 77.43% over a three month period.  If you have not viewed the previous recommendation, please click here. 


Share Price Increases Over 30% Today:


According to the New York Times:


"Green Mountain Coffee Roasters shares sailed out of the ballpark Thursday with a deal to sell Starbucks brand coffee and Tazo teas for its single-coffee Kuerig coffee machines starting later this year."


So what does this mean?  GMCR made this move to increase its revenue and overall profit by offering Starbucks coffee and Tazo tea to its customers.  I think will prove to be a very good strategic move for GMCR and expect the share price to increase substantially further in the future. 


Buy More: 


Most Investors would be scared to buy more GMCR stock after this 37% increase.  Not Caligiuri Investments.  I recommend for people to buy more stock in this company.  When a share price increases as much as GMCR's did today it usually means one of two things: 1) The share price increased too much and the stock is overvalued or 2) The share price did not increase enough and there is still plenty of room for the stock to run.  I think number two is the truth, buy more.


Michael R Caligiuri owns shares of Green Mountain Coffee Roasters

Green Mountain Coffee Roasters (GMCR) Update

Share Price Increase
GMCR shares shot up more than 15% today due to "a better-than-expected second-quarter profit forecast" (marketwatch.com).

Still a Good Buy

Even after a 15% increase, I still strongly believe that an investment in GMCR will outperform the stock market over the long-term.  If anyone wants to reference the first GMCR recommendation that was made on December 10th, please click here.

Michael R Caligiuri owns stock in GMCR 

Sell Best Buy (BBY)

Even after a 15%+ drop in share price today, I recommend to sell shares of BBY. 

Shares fell because of missed earnings expectations.  Usually I do not fret over short term stuff like missing earnings expectations, but this is different. This is not just a short term "hick-up", but rather a sign of a long term trend.  Expectations were missed because BBY is losing market share, and because it is having a hard time competing with other companies who are selling the same stuff for less (i.e. online retailers such as Amazon).

I can see the price of BBY falling to the mid twenties if this trend continues.

Consider buying some good stocks that have been beaten up lately like GMCR and EBIX.

For an article of the recent price drop CLICK HERE

Buy Green Mountain Coffee Roasters (GMCR)

Reason to Buy:  

Great company accompanied by over a 10% drop in share price today.  The share price dropped because of missed earnings expectations.  Because I am a long term investor, I am not concerned with a one quarter mess-up.  For more on the price drop click here.

Business:

Green Mountain Coffee Roasters is a company that thrives off of its patents.  The major patents include the popular Keurig single cup coffee machine, and the K-Cups that are needed for the machine.
  
Growing and Profitable:

The revenue growth from this time last year is over 63% and the earnings growth from this time last year is over 31%.  Growth rates of over 15% are usually considered significant.

Profitability is another one of GMCR's strong points.  Return on equity and return on assets are over 16% and 10%, respectively.

Video:

If you are unfamiliar with the Keurig coffee machine just click on this link! 

Michael R Caligiuri owns shares of Green Mountain Coffee Roasters (GMCR)