The coffee industry is back in the news with David Einhorn, renowned short-seller, slammingGreen Mountain Coffee Roasters (NAS: GMCR) for expensive products and opaque accounting procedures. Following his opinion, which was shared in the seventh annual Value Investing Congress, Green Mountain stock fell around 11%. However, instead of signifying serious consequences for the company, this fall may just be the buying opportunity investors are looking for.
Despite a questionable economic outlook, Green Mountain has been a strong player in the coffee industry. It acquired Kuerig, a coffee machine manufacturing company, in 2006. With this acquisition, Green Mountain bought a strong product portfolio that consisted of coffeemakers and K-Cup machines that brewed single cups of hot beverages. Currently, K-Cups are Green Mountain's most popular offering, bringing in a major portion of its revenue. Einhorn, who is famous for predicting the fall of the now-defunct Lehman Brothers, among other things, said that in addition to discrepancies in Green Mountain's financial disclosures, its K-Cups were expensive product offerings, not justifying their cost.
However, I don't see the popularity of K-Cups going down anytime soon. For one, the Vermont-based company is quickly expanding into the retail segment and already has its K-Cup offerings in Wal-Mart (NYS: WMT) and Target (NYS: TGT) stores. In addition to this, the company is also planning to launch its brewers in the South, Midwest, and West Coast regions of the United States. This expansion into new territories coupled with robust demand could help the company remain a valuable investment option for the next few years.
With the exception of the most recent quarter, Green Mountain has consistently outperformed analysts' expectations. The company's quarterly results topped market expectations for four of the last five quarters, with profit rising year over year by 44.7%. In the third-quarter results declared in July 2011, Green Mountain reported that its net income increased from $0.13 per diluted share last year to $0.37.
The flavor of partnerships
While past figures are impressive, Green Mountain's future growth prospects are even better. In addition to its product offerings in Wal-Mart and Target, the company is also planning a business partnership with Starbucks (NAS: SBUX) . The popular American coffee maker announced its intention to increase its single-cup coffee sales with the introduction of K-Cups in its stores. This deal is a lucrative business opportunity for Green Mountain that is bound to take its stock northward in the coming few years. Strong product offerings combined with the company's expansion plans into unchartered territories means that its growth will be even faster than it is currently.
In addition to this, the rising commodity prices that have affected competitors like Kraft Foods (NYS: KFT) and Dunkin Brands (NAS: DNKN) have also enabled Green Mountain to capture a higher market share.
The Fool's line
Considering the popularity of its products, business deals, and partnerships, I think Green Mountain brings a newly fresh opportunity for investors. I wouldn't let the comments of a single analyst determine my outlook on the stock. If anything, I would take a fresh look at my investment options and give serious consideration to Green Mountain as a long-term bet now that they have fallen from their previously lofty multiples.
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At the time thisarticle was published Vibhuti Shah doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Starbucks and Wal-Mart Stores.Motley Fool newsletter serviceshave recommended buying shares of Wal-Mart Stores, Green Mountain Coffee Roasters, and Starbucks.Motley Fool newsletter serviceshave recommended creating a lurking gator position in Green Mountain Coffee Roasters.Motley Fool newsletter serviceshave recommended creating a diagonal call position in Wal-Mart Stores. 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.
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