February 5, 2009 - Green Mountain Coffee Roasters Inc. (GMCR-NASDAQ) operates in the specialty coffee industry in the United States and internationally. It sells approximately 200 whole bean and ground coffee selections, cocoa, teas, and coffees. The company offers Arabica bean coffee, including single-origin, Fair Trade Certified, organic, flavored, limited edition, and proprietary blends under the Green Mountain Coffee, Tully's Coffee, and Newman's Own Organics brand names.

The company provides cocoa, teas, and coffees in K-Cup portion packs, Keurig single-cup brewers, and other accessories. It sells whole bean and ground coffee, K-Cups, Keurig single-cup brewers, and other accessories in domestic wholesale and retail channels, and directly to consumers. The company markets coffee, tea, cocoa, and single-cup brewers to retailers, such as department stores and club stores; and single-cup brewers to distributors, as well as to supermarkets. Green Mountain Coffee Roasters, Inc. was founded in 1981 and is headquartered in Waterbury, Vermont.

In 1999, investors bought this stock for 60 cents a share (split adjusted for 3 stock splits). In 2004, there was plenty for sale at $4. Now it'll cost you $81 to own it. What makes a stock go up 20 times in 5 years?

The answer to that question is always the same: earnings. Green Mountain's were in a range of 18 cents to 26 cents for several years until in 2007, they started to improve, went from 24 cents to 35 cents. In 2008, they jumped to 58 cents only to leap again to $1.13 (fiscal year ends in September). This year, the consensus from 10 analysts is for $2.02, then next year, another major increase to $2.81. Clearly, what Green Mountain is serving, consumers are drinking.

And Green Mountain is looking to serve more. It's growing by acquisition. Last year, it bought Tully's Coffee to move rapidly into the Western United States. In the first fiscal quarter, it added Timothy's Coffees of the World, Inc., a Canadian based wholesale operation selling specialy coffee, tea, and other beverages under the names of Timothy's World Coffee, Emeril's and Kahlua. Timothy's is expected to add to earnings this year. Another deal in the works: buying Diedrich Coffee, a company with name-brand coffee as well as manufacturing and distribution capabilities in the much sought after California market.

Part of Green Mountain's success comes from its Keurig division. It makes a single-cup brewing system that's been well accepted by consumers. In fact, demand is growing for the device that is changing the way Americans make their coffee. Expect higher growth from this group.

Management has been cleaning up the balance sheet, paying down debt. With strong cash-flow, the company has eliminated most of it (now 11% of capital) and has a surplus of cash to go shopping for other companies. There's currently $123 million in cash.

More numbers: Market cap is $3.57 billion. Sales were $955.43 million for the last 12 months. In the most recent quarter, revenues were up 77.40% compared to the same quarter last year. Trailing P/E is 62 while the Forward P/E is 28.6. Price to sales ratio is 3.76. Price to book is 5.95. Book value is $13.88. For the last 12 months, Operating margin was 10.39% and Profit margin was 5.65%. Total cash per share is $2.82. Total debt is $79.82 million. The Current ratio is 2.73. There are 43.67 million shares outstanding with a Float of 36.69. Insiders own 16% of the stock. Institutions own 84%. There is no dividend.

Investors love this stock. They see nothing but blue skies and green mountains ahead, with profits along the wayside. It's reflected in the valuations, especially the P/E ratio. Even using the forward P/E of 28, the stock carries investors' hopes at a very high level. While management has done a great job steering the firm into ever higher profitability, investors need to have some caution. This is a very good company, but buying it at this level seems a bit risky. It's a stock that deserves watching, and if it dips, may be a good one to add to a more aggressive portfolio.

- Company Web site: www.GreenMountainCoffee.com

- Ted Allrich