"Green Mountain Coffee Roasters (NASDAQ: GMCR) recently reported an outstanding second quarter," notes growth stock expert Michael Cintolo.
In The Cabot Market Letter, he suggests, "The company -- which sells coffee and single-cup brewers -- has as big a mass market story as we’ve ever seen." Here's the advisor's review.
"Initially after the earnings report, the stock fell following its report, supposedly because revenue growth was light. But we think focusing on that detail misses the big picture.
"First, revenue growth is still accelerating; the second quarter’s rose 61% from a year ago, compared to 60%, 56% and 45% growth the prior three quarters.
"Over the past 12 quarters, sales growth has averaged 56%!) And because of the high-margin sales of K-Cups, pro? t margins surged—7.4% last quarter, compared to 6.0% in the second quarter of 2008, an improvement of 23%.
"But it’s not just about the headline numbers. The company’s strategy is to sell its brewers at near cost to get as many as possible in households and of?ces. And that will lead to rising K-Cup sales—the classic razor/razor blade strategy.
"Given that, we believe the most impressive number in the quarterly report was the number of brewers sold. Brewer sales were up a huge 187% in the second quarter (to 439,000 brewers), compared to 148%, 121% and 75% growth the prior three quarters. Rapid acceleration!
"And growth should remain buoyant as the holiday season approaches. Furthermore, in 2010, the Mr. Coffee and Cuisinart co-branded single cup brewers (which use Green Mountain’s K-Cups) hit the shelves. As for K-Cup sales, they were up 64% last quarter, the fastest growth rate in more than a year.
"Furthermore, the potential remains incredible. In the U.S., there are 90 million households that have some type of coffee maker; of them, 64 million drink at least two cups per day.
"But only three million of those own a Keurig brewer! So you can imagine what earnings will look like if the company expands its presence two- or three-fold, which is certainly possible.
"The bottom line is that Green Mountain has as big a mass market story as we’ve ever seen, and while that doesn’t guarantee success, it certainly helps.
"The stock itself has held up well after a shakeout on earnings, and after a recent four-million-share offering (part of which went to pay down debt). Buy some here if you don’t yet own any."
