At one point about 2 years ago I thought this stock was overvalued. In current conditions it's way undervalued imo. Coca-Cola(KO) has a 16 percent stake and I believe that they will increase that stake out of concern that GMCR represents a real threat.

I was recently speaking with a friend of mine who told me that he was staying at a hotel and every room had a Keurig machine in it.

This company has a market cap of 21 billion and KO has a market cap of 180 billion. Did you know that Keurig made more money in net profit than Starbucks last quarter? Starbucks has 150,000 employees and Green Mountain only has 6600 hundred.

They are soon to release Keurig Cold in partnership with Coca-Cola. Just yesterday they released the new Keurig 2.0 machine that can make both single cups and entire pots of coffee.

Everything is working in their favor right now.

1. Economies of scale will help increase their gross margin
2. All major brands have product for Keurig because they just signed the deal with Kraft
3. They are about to roll out the machines internationally for the first time to four countries

So... you didn't talk about why it is undervalued. You just talked about everything everyone already knows that is currently priced in. You also didn't mention any of the problems this company faces in continuing to justify its pps.

Justify? They just made a deal with Kraft that distributes drinks for McDonald's! It's not even about immediate sales of those products it's about what that deal MEANS for the rest of the beverage market. Clear evidence of a paradigm shift in the market. It is now not a question of wanting to do a deal with GMCR, it is about HAVING to do a deal with GMCR. Every deal increases the utility of the Keurig machines which in turn makes owning one more beneficial to the customer. A Keurig machine can now make 290 beverages.

Just looking at the world market for tea should make people buy it. Coffee is an incredibly popular beverage and it only represents 6 percent of the world market sale of beverages. Tea represents 15 percent of the world market for beverages. More than coffee and soda combined!

Very soon I predict that Keurig will have a level of sales that surprises even them. It can take awhile for the public to embrace new technology thoroughly. All of the heavy lifting is over for Keurig and this is the point where the floodgates of money start pouring in.

You are literally repeating everything that anyone who researches GMCR knows. What you are not repeating is a number of things, such as the failure rate on personal keurig machines. Personally, I've had to replace mine twice due to the machine's pump system breaking. They foot the bill both times and do not take the existing machine back. This is a recurring problem that many experience. I love my keurig so it doesn't stop me from owning it and using it, but it effects their bottom line.

You also didn't get into financials at all. Revenue growth has slowed tremendously and isn't even forecast to grow that fast in spite of the deals. All these deals have helped spur higher prices, as has their earnings report beats quarter after quarter -- though there is skepticism about their consistently lowered internal guidance every quarter followed by the beat. Finally margins are probably the most discussed issue with GMCR. I mentioned one issue that cuts into their margins and is recurring problem that many have, but the new Keurig is considerably more expensive to produce, and so it is inherently risky. Higher production costs mandate higher price tags, that run the risk of getting discounted if it doesn't sell as well.

At these price levels, all the things you've mentioned are accounted for. The stock is incredibly expensive and has a lot of risks that need to be played out to see if the price is justified. Convince us you know something that the rest of the market doesn't. Don't reiterate what everyone knows. That just isn't how you build a bull thesis, especially in a name as overvalued as this.

Look what happened when they announced the Kraft deal. The stock went up 13 percent in one day. According to your way of thinking everything is priced into the market before it happens. If that were true the stock would not have gone up 13 percent on the day the deal was announced. So my prediction is that the market does not price in things fully until they actually happen and I believe that is true no matter how strongly the evidence supports the probability of the event happening.

Based on their current market position I believe that certain events transpiring are a virtual certainty. The market is not going to fully price those events in until they actually happen. For example, because of the Kraft deal they will make a deal with McDonalds soon.

The reason these restaurant deals have to happen is because of the distribution that the coffee brands are going to want for their products under the Keurig system because they themselves want to sell more beverages. Their total combined influence is enough for restaurants chains to carry the Keurig machines. Drink selection is very important for restaurants. It's networks piling on top of networks now and it makes the entire thing stronger. The reason why it's inevitable is because everyone ultimately makes more money. Restaurants might give up a little bit of drink margin per drink but they make up for it in drink selection and reduced labor and capital expense that is involved in serving a wide range of beverages. Overall having a larger selection means they will have something for everyone and drink sales will go up.

For the companies that own the brands they make more money per drink by quite a bit and they get to control the quality of what is sold far better than they can now. The reason is because it's much more predictable what the new machines will dispense vs. what store control machines would.

Even one deal like McDonalds doubles the value of their business. I believe huge deals like this will start to happen much more quickly now. Huge chunks of business coming their way. I guess we will find out both if I am right and if the market has already priced that in.

Alas we are able to unlock your entire thesis. I will state it for you in one sentence:

I believe GMCR will continue to rise in price by continuing to sign enough new deals to overcome their decline of rapid revenue growth as well as future margin deterioration concerns.

See how easy that is? Here's a slogan too: "A bet on GMCR is a bet on more deals to come in spite of their inability to convert all these gosh be darned deals into increased revenue growth."

You don't know what you are talking about (most have zero clue). The odds of you being a successful investor over a period of many business cycles is zero. The obvious suggestion is to keep your day job.

GMCR is my happiest buy - picked it up at 27 after it plummeted when they lost their patents. Unfortunately dumped most of it at around 75 (it was on its way down to the 60 area).

Have been thinking about picking it up again.

I think this video sums it up:

wp

LOL at your "analysis" and the idea that you have some special information that the market doesn't have.

Also,
No. Unless you think that having larger EPS is meaningful, in which case even more LOL.

"ZOMG, Apple's EPS so much lower now that they've split their stock!!!!"

GMCR may or may not turn out to be a good buy, but your nothing you wrote is insightful or a reason to buy it.

You're right it wasn't last quarter it was last year.(2013) It's not an entirely fair comparison because of the reason that Starbucks lost money in some quarters in 2013. Starbucks sells product at notoriously aggressive prices which does not leave them much room to breath if customers turn against them. As a value proposition buying a Starbucks coffee is almost like paying to be raped. Keurig is in the best position in the market to change the value proposition for the customer by increasing the quality of the experience that the customer has. You're dealing with a 10-1 price ratio for a beverage experience that is converging as a result of technology. Starbucks is expanding into China etc and that expansion requires a lot of capital investment. Those investments won't fail right away and neither will Starbucks. At some point they will fail.

Keurig has a fundamentally better business model long-term.

Oh jesus. Starbucks had a $2.8 billion litigation charge in 2013. I think I earned more in 2013 than Starbucks did.

Your analysis is horrible.

If you look at the reason they had to pay $2.8 billion it directly relates to Keurig. Kraft and Starbucks had an agreement for Kraft to distribute Starbucks coffee in grocery stores. In 2010 Starbucks offered Kraft 750 million to terminate the deal. Kraft refused. So in 2011 Starbucks backed out of the deal anyway. In November of 2013 an arbitrator reached a decision to that forced Starbucks to pay a 2.2 billion dollar fine plus interest and attorneys fees which made up the 2.8 billion total cost.

Here are some quotes from Starbucks and Kraft(for context):

"As a result, we do not believe that the arbitration's outcome has or will have a material financial impact on Kraft," the spokesman said.

Mondelez said it intends to use the proceeds from the arbitration award to buy back shares. Gerd Pleuhs, general counsel for Mondelez, said the company is "pleased that the arbitrator validated our position."

Kraft now has a new partner in the packaged-coffee business: McDonald's Corp. MCD +0.36% The company said last month it will sell packaged McCafé coffee in U.S. grocery stores in test markets next year.

Starbucks, meanwhile, was allowed to take back control of its packaged-coffee business while arbitration proceedings continued. That allowed Starbucks in 2011 to begin selling K-cups in Green Mountain Coffee Roasters Co.'s Keurig single-serve brewers.

"We've sold more than one billion K-cups since then, which is something we wouldn't have been able to do if we were still with Kraft," a Starbucks spokesman said.

Seems they are taking the same path as innocent.

http://en.wikipedia.org/wiki/Innocent_Drinks

You could also own KO instead. If you buy Berkshire top 10 you would have historically beat the market by over 5%.

Thanks for posting that. I didn't find that when researching. It's definitely relevant because it shows the path that KO is likely to take in buying GMCR.