Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Are Shares of Coffee Retailers Overheated?


Are stocks like Starbucks and Caribou Coffee investable at current prices? What is their near- to mid-term outlook? To find these answers, turn to their charts.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

After standing toe to toe with the financial crisis and absorbing multiple economic body blows, retailers like Starbucks (SBUX), Green Mountain Coffee Roasters (GMCR), and Caribou Coffee (CBOU) stand as strong examples of just how valuable coffee is to the American consumer. Tighter budget or not, coffee is clearly an important part of the morning routine. Simply put, Americans love that fresh roasted smell and taste and can't give up their morning caffeine kick! In fact, Americans are digging it now more than ever… even at a cost of $3, $4, or $5 per cup.

At the height of the financial crisis, consumer-related stocks were getting pummeled. And coffee retailers, um, well, who needed them? The outlook was grim, at best. Caribou Coffee's stock had dropped down to a buck and change and Starbucks sat around $7 to $8. But those prices are now just a distant memory, as the industry has climbed the proverbial wall of worry over the past two years.

Fast-forward to today, and Caribou's stock is over $14 and Starbucks' over $42. In fact, both stocks hit all-time highs earlier this year. Revenue growth has been chugging in at about 10% and profits are growing nicely; Caribou's forward Price/Earnings (P/E) is 28 and Starbucks' is 23.

Turning to Green Mountain Coffee Roasters and forward revenue and earnings growth clocks in at 60-70%, although that should slow measurably by 2013. Green Mountain's forward P/E stands at 27.

This all sounds good, but an all-important question still remains: Are these stocks investable at current prices? And further, what is the outlook for these stocks over the near to mid term? To find answers to these and more, we need to turn to the charts and put the stocks through some technical analysis 101.

Starting with Starbucks, the charts show a strong, developed bullish channel that should assist in guiding investment decisions – any sustained break of the lower channel could spell trouble. Caribou looks to be consolidating/absorbing a blow-off top formation from a few months back and needs some time to heal. And lastly, Green Mountain Coffee Roasters is trying to find a bottom after free falling 50% on negative valuation comments from acclaimed value investor David Einhorn during his presentation at the Value Investing Congress. See annotated charts below for additional color.

Have a great week. And happy investing.

Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market. His writings also appear on Minyanville's blog community.

Twitter: @andrewnyquist

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos