Continuation of Part 3(below)…...What no one at the time realized is that they were sitting on top of a goldmine that would transform their business. Through the combination of Keurig’s Premium Coffee System and Green Mountain’s coffee and K-Cups (single cup) technology, the company was about to create something of a “printer & ink” combination in the hot beverage/coffee industry.
So much so that the company went from deriving 95% of their revenue from their low margin wholesale coffee business in 1999 ($65 Million), to deriving 95% of their current revenue base from their high margin sales of Keurig Coffee Systems and K-Cups ($4.3 Billion). In summary, staring in 1998-1999 Green Mountain Started its transformation from a sleepy coffee distributor/roaster into a high-technology coffee company. Hence the growth and the 49,616% return on investment since 1999.
For our purposes, we must ascertain if it would have been possible to predict this meteoric rise and take position in the second half of 1999 from the fundamental perspective alone.
The short answer is NO.
There were very few clues that would allow us to take a position at the time. First, there was nothing special about the company. It was just another regional coffee distributor/roaster. Second, the company was stuck in a tight trading range for over five years. Further, the company’s valuation at the time (with the P/E of 20) would not warrant a value oriented investment. Finally, there was nothing to suggest that the company was about to stage a massive revenue growth spurt.
Even Green Mountain’s own management didn’t not anticipate that their Keurig line would take off as much as it did. The best any fundamental analyst could have done at that stage is thrown this company into a “Big Potential” bin. That is after analyzing Keurig & K-Cups in great detail and realizing that the company MIGHT have a great product line on their hands. Yet, no one at the time could have predicted that Keurig and Green Mountain would be able to achieve the growth that they have had. This brings us to the technical side of the equation.
TECHNICAL ANALYSIS:
Since the fundamental analysis has failed to give us the ability to take a long position in Green Mountain’s stock in the second half of 1999, we must now concentrate on the technical side of the equation to see if would have had better luck there.
As you can see from the 1994-2000 GMCR chart above, after going public the company’s stock immediately declined over 50%. Thereafter, the stock price remained in a tight trading range of $0.14-0.40 (split adjusted) between 1994 and the second half of 1999. Bottoming at $0.14 in October of 1998.
With the stock price trending higher in 1999 and 2000 we would had two opportunities to take a long position in GMCR at the time. One in September of 1999 at $0.31 and one in January of 2000 at $0.35. With the $0.35 entry point in January of 2000 being technically more sound.
To Be Continued Tomorrow…….
Would You Like A Million With That Coffee? (10 Bagger Book. Part 4) Google