2 Surprising Facts About Green Mountain

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Wall Street's missing the point again.

When shares of Green Mountain Coffee Roasters (NAS: GMCR) tumbled 18% on Friday after Starbucks' (NAS: SBUX) entry into the single-serve coffeemaker market, it was easy to call it an overreaction.

Now that the company behind the Keurig one-cup brewer and the K-Cups that provide caffeinated kicks has seen its shares fall by nearly 5% yesterday, can we call this an overreaction to Friday's overreaction?

No. The market clearly isn't happy about this move, seeing it as a bigger threat to Keurig's premium black coffee device than the potential cannibalization of Starbucks' own in-store business.

Rather than dive deeper into the many reasons that Green Mountain should bounce back -- something I tried yesterday -- let me turn my attention to factual numbers to debunk a couple of myths about the java heavy.

1. Green Mountain is not that expensive
You know Starbucks. You know Green Mountain. One is trading for 23 times next year's earnings and the other is fetching less than 14 times next year's projected profitability.

If you figured that Green Mountain has to be the one that's commanding the loftier multiple, you would be dead wrong. Green Mountain is fetching just 13.6 times its bottom-line forecast for fiscal 2013, even though analysts see revenue growing by 63% this year. Green Mountain's K-Cup patents expire at the end of fiscal 2012, so 2013 has to be a disaster. Right? No. Analysts see earnings still growing at a healthy 38% clip.

Losing the patent protection isn't a positive, naturally, but keep in mind that it will likely make K-Cups even cheaper and with an even wider array of varieties than the 200 already on the market. What do you think that will do for Green Mountain's patent-protected Keurig brewers? What about the fact that the company has been planning for this day in recent years by acquiring the most popular K-Cup brands and introducing a new system?

Green Mountain is cheap, but that doesn't mean that Starbucks is expensive. The barista baron is expected to grow its earnings by 22% this fiscal year and 23% come fiscal 2013. It's poetic to see its 2013 earnings multiple split the difference at 22.5 as of last night's close.

If you want a more puzzling valuation in this niche, consider that Dunkin' Brands (NAS: DNKN) trades at 22 times next year's profit projection even though analysts see top-line growth in the single digits over these next two years.

Green Mountain is many things -- but expensive isn't one of them.

2. Green Mountain's stock is a strong performer
The past few years have been spectacular for Green Mountain. If you adjust for all of the stock splits that the company has declared over the past decade, the stock closed out calendar year 2002 at $1.12. It's been a 45-bagger in that time.

It's at this point that there's a lesson waiting to be relearned about compounded returns. Let's go over the stock's annual returns dating back to the end of 2002.

  • 2003: 52%
  • 2004: 9%
  • 2005: 62%
  • 2006: 21%
  • 2007: 148%
  • 2008: (5%)
  • 2009: 216%

Let's pause there. Outside of more than doubling in 2007 and more than tripling in 2009, it's not as if every year was a blowout performance. However, steady market-thumping years will work wonders for your compounded performance.

Well, now let's go over the next three years.

Surely 2010 must've been a challenging one. There was an SEC inquiry in September. Two months later, Green Mountain conceded that it would have to restate four years of financials. Since you know how strong the stock was in two of those years, naturally this should have been a down year. But no. The stock climbed 21% higher in 2010.

Ahh, 2011. This was the year that began positively when Starbucks -- and later Dunkin' -- agreed to team up with Green Mountain to put out K-Cups. However, this was also when hedge fund rock star David Einhorn presented his bearish case on Green Mountain, complete with a thorough 110-slide presentation. The stock cratered on the attack, but ultimately closed out the year 36% higher.

We're now just two months and change into 2012, but we've already seen the beating that the stock has taken over the past two days. The Verismo vampire is coming, and it's going to stick its fangs into that spunky little Vermont coffee company. Well, even after the last two brutal days, Green Mountain's stock is still trading 12% higher year to date.

History proves that Green Mountain bounces back.

Why should it be any different this time?

Brew ha ha
Shares of Green Mountain have popped nearly sixfold since I originally recommended the java heavy to Rule Breakers subscribers three years ago. It's clearly been a big winner for the growth-stock newsletter service, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report tells all. Check it out before it's gone.  

At the time this article was published The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Starbucks and Green Mountain Coffee Roasters.Motley Fool newsletter serviceshave also recommended creating a lurking gator position in Green Mountain Coffee Roasters and writing covered calls on Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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