Green Mountain Shares Ground Up Today: What You Need to Know
Mar 9th 2012 5:19PM
Updated Mar 9th 2012 5:22PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of one-cup-coffee king Green Mountain Coffee Roasters (NAS: GMCR) were leaving investors with a bitter taste as they sold off as much as 17% in intraday trading.
So what: When Green Mountain started selling Starbucks (NAS: SBUX) -brand pods for its single-serve coffee brewer, investors let out a sigh of relief, assuming that it meant that Starbucks wouldn't end up being a key competitor of Green Mountain. Fast-forward to today: Starbucks has announced the Verismo, a for-the-home, single-serving coffee maker. If the Verismo puts the $39 billion Starbucks in direct competition with the $8 billion Green Mountain, there should be little surprise that Green Mountain's shares are selling off today.
Now what: The big question, then, is whether the Verismo does in fact put the two companies in a head-to-head rivalry. Starbucks and Green Mountain are doing their best to convince us it doesn't: They emphasize that the Verismo is focused on espresso and specialty drinks as opposed to good old-fashioned coffee. My fellow Fool Jason Moser shares that view, seeing the Verismo as more of an attack on Nestle and its Nespresso machines.
At the same time, it's not much of a leap to see Starbucks entering the home-brew market with the Verismo and later augmenting it with a single-cup brewer that would more directly compete with Green Mountain's Keurig.
My take is that today's announcement doesn't train Starbucks' considerable firepower on Green Mountain. However, if I were considering an investment in Green Mountain, I certainly wouldn't discount the potential for its upward climb to get much steeper.
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At the time this article was published Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. Motley Fool newsletter services have recommended buying shares of Starbucks and Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks; and creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
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