The Financial Post crowns Green Mountain Coffee Roasters (GMCR, Financial) the most expensive in America, trading at 295 times cash flow, 81 times earnings (and no, earnings are not temporarily depressed – these are the highest earnings in the company’s history, by a long shot) and above the 80th percentile for its sales multiple (also at a historic peak).
GMCR has gained 18% in the last month alone, on rumours of a tie up with Starbucks (SBUX, Financial), though, as you would expect with such high multiples, the stock has been see-sawing quite heavily on any whiff that the tie up may not materialize.
In an internal memo, Starbucks’ founder Howard Schultz made statements that could be interpreted to mean that SBUX would on its own in single-serve coffee products (the current domain of GMCR, producer of Keurig branded coffee machines, with 80% market share of the single-cup coffee market), which sent GMCR down 7.7%. Oh the perils of investing in overvalued companies!
Multiples this high are derived from high expectations about future growth. Interestingly, analysts interviewed in the article admit that the company’s future growth prospects are highly uncertain, with its Keurig K-Cup patents expiring next year. If SBUX enters the market (which looks likely), that wouldn’t help matters for GMCR’s growth prospects. Nevertheless, the valuation models mentioned in the article assume exceptionally high multiples on EBITDA going forward.
Check out the full article here. I’d love to hear from some GMCR longs – leave your thoughts in the comments.
Author Disclosure: No Position
Talk to Frank about GMCR
GMCR has gained 18% in the last month alone, on rumours of a tie up with Starbucks (SBUX, Financial), though, as you would expect with such high multiples, the stock has been see-sawing quite heavily on any whiff that the tie up may not materialize.
In an internal memo, Starbucks’ founder Howard Schultz made statements that could be interpreted to mean that SBUX would on its own in single-serve coffee products (the current domain of GMCR, producer of Keurig branded coffee machines, with 80% market share of the single-cup coffee market), which sent GMCR down 7.7%. Oh the perils of investing in overvalued companies!
Multiples this high are derived from high expectations about future growth. Interestingly, analysts interviewed in the article admit that the company’s future growth prospects are highly uncertain, with its Keurig K-Cup patents expiring next year. If SBUX enters the market (which looks likely), that wouldn’t help matters for GMCR’s growth prospects. Nevertheless, the valuation models mentioned in the article assume exceptionally high multiples on EBITDA going forward.
Check out the full article here. I’d love to hear from some GMCR longs – leave your thoughts in the comments.
Author Disclosure: No Position
Talk to Frank about GMCR
